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Chairman

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

India’s merchandise exports declined for the second time in three months in August as global trade tensions and sluggish demand brought down shipments by 6.1 percent. Engineering exports continued to see year-on-year decline for the third consecutive month to August 2019 and this time the fall was much higher at 8.92 percent as against 1.50 percent (revised) in July 2019. As on date, engineering exports declined in all months in fiscal 2019-20 barring May 2019 and in August the negative growth was highest.

The GDP growth rate has slipped to 5 percent in the first quarter of FY20, the lowest in over six years. India’s industrial production growth too slowed to 4.3 percent in July, dragged mainly by manufacturing sector’s poor show, according to the latest data. These trends are indication of tougher times ahead.

Globally, the trade policy uncertainty index (WUI) is rising sharply, having been stable at low levels for about 20 years, according to the World Economic Forum. The index shows increased uncertainty starting around the third quarter of 2018, coinciding with a heavily publicised series of tariff increases by the United States and China. It then declined in the fourth quarter of 2018 as US and Chinese officials announced a deal to halt the escalation of tariffs at the G-20 meeting in December in Buenos Aires. It significantly spiked again in the first quarter of 2019 following a substantial expansion of American tariffs on imports from China on March 1.

The murmurs of a global recession are getting louder. Nine major economies around the world, including the UK, Germany, Russia, Singapore, and Brazil, are on the brink of recession or already there and economists fear the US is likely to follow soon. Given the current situation, the WTO in its quarterly World Trade Outlook report projected global merchandise exports growth to fall from 3.9 percent in 2018 to 3.7 percent in 2019.

In a welcoming move, the Finance Minister has recently announced a series of measures to boost various segments of industry including the exports sector. To counter the allegations of WTO non-compliance of our export incentives, the government has already announced the introduction of Remission of Duties or Taxes on Export Product (RoDTEP), a scheme which is expected to replace MEIS effective from 1 January 2020.

A fully electronic refund module for Input Tax Credit (ITC) was also proposed to be implemented by the end of September 2019. Export finance was of utmost importance for the government and several measures were put forward including expanding scope of Export Credit Insurance Scheme (ECIS) by ECGC and revising Priority Sector Lending (PSL) norms for export credit in favour of exporters. A number of effective measures were also adopted by the government for spreading awareness on utilisation of benefits provided under FTAs.

After the WTO’s Doha round of negotiations, as countries across the world are bringing down tariffs substantially, standards and regulations are coming up as trade barriers. In this context the government has proposed to set up a Working Group on Standards to ensure time-bound adoption of all necessary mandatory technical standards by the industry and their effective enforcement to elevate the quality and performance. Another was to develop affordable testing and certification infrastructure in PPP mode to enable exporters to get all internationally accepted tests and certifications done within India. Both the measures would definitely help the exporting community in conforming to international standards and in overcoming non-tariff barriers.

The world focus in this issue is Bangladesh. Listed among the Next Eleven emerging markets, Bangladesh is the second-largest economy of South Asia in terms of purchasing power parity, after India. EEPC India will be taking its flagship event, INDEE, to Bangladesh for the second time in three years, following the record success of the first INDEE in 2017. INDEE Bangladesh 2020 is scheduled to be held over 22-24 January in Dhaka. This would be the 41st edition of EEPC India’s 42-year-old event and I hope to see many of you among the exhibitors at the International Convention City, Bashundhara, in Dhaka.

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.
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