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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.

As I take over as Chairman of EEPC India from my esteemed colleague, Mr Ravi Sehgal, this is my first Musings for EEPC India’s monthly journal, Indian Engineering Exports. While I am pleased to assume my new role, I am indeed saddened to look at the condition of global trade affected by the Covid19 pandemic. Besides creating a health hazard globally, the worst effect has been on the financial well-being of companies, especially MSMEs across the world. In India, too, the pandemic has had a negative impact on demand creation which has in turn affected the profit margins of several industries.

Even sectors such as medical devices, which are supposed to be in high demand during this health crisis, are facing financial woes due to demand constriction. According to reports, the revenue of the Indian medical devices sector has dropped by 50-58 percent during the first quarter of fiscal 2020-21. This drop has primarily been triggered by the decline in the numbers of elective surgeries – a key demand driver for the industry. This revenue loss is expected to have a rippling impact on the financial health of the sector. This is by and large the picture of almost all industries – lack of finance crippling their ability to continue operations.

Meanwhile, the Department of Revenue has decided to stop MEIS benefits with retrospective effect. According to media reports, the Ministry of Finance believes that MEIS does not contribute to export growth and the rupee depreciation should have been incentive enough for exports. We have already written to the government on the invaluable role of MEIS not only maintaining exports globally but also in diversifying the exports market. Furthermore, the MEIS scheme has neutralised some of the taxes and para taxes embedded in the production of exported goods and hence it is in a sense a legitimate quasi refund of taxes. Export growth is dependent upon a large number of factors: external demand and growth in world trade; relative depreciation vis-à-vis competing countries; logistical and other transaction costs in the country as opposed to competing countries; freight costs borne by engineering exporters vis-à-vis competing countries, especially China, among others. MEIS benefit has played an indelible part in helping Indian engineering exporters maintain their competitiveness, more so since over 90 percent of exports are either low- or medium-value-added. Exporters do factor in external volatility and can often sense such changes. What are difficult for them to factor in are sudden internal policy changes and especially those which have retrospective effect. This recent decision will definitely have an extreme adverse impact on the exporters’ ability to survive in these difficult conditions. We have expressly requested the government not to stop MEIS benefits without implementation of the RoDTEP scheme.

To address the concerns regarding access to finance the Ministry of Finance has recently expanded the ambit of the Emergency Credit Line Guarantee Scheme (ECLGS) allowing larger MSMEs and even individuals to avail of the scheme for business purposes subject to eligibility conditions. The industry has welcomed the extension of the ECLGS scheme. However, along with this there are other interventions that are required to upgrade the manufacturing industry in India which mostly specialise in low-value-added and low-technology products. For instance, till recently there was no technical standard for manufacturing ventilators in India. It was after the onset of the pandemic that the Union Health Ministry issued Prescribed Minimum Essential Specifications for Make in India ventilators for use in Covid19 ICUs. Now the government has lifted the ban, imposed on March 24, on exports of ventilators from India.

This edition of the journal focuses on India’s medical devices industry, its opportunities and challenges in the post-pandemic era. I hope our readers will find it informative and enriching.

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