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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.

The March figures of engineering exports have been released and as expected the devastating impact of the COVID-19 pandemic has become clearly evident. Echoing the trend in India’s merchandise exports, which exhibited a y-o-y decline of 35 percent in March 2020 India’s engineering exports for the same period declined by a whopping 42.5 percent. Within the engineering sector all major product panels exhibited sharp decline in March 2020. Overall, this fiscal (April-March 2019-20), India’s cumulative engineering exports declined by 5.8 percent when compared to the last fiscal. The pandemic has surely brought a halt to the trend of record growth in exports, which the Indian engineering sector was witnessing in the last two fiscals.

The fall in exports has been majorly attributed to the rapid spread of the disease across the globe and subsequent stoppage of manufacturing activity in different countries, which resulted in mass cancellation of orders. At the same time, the shutdown in Chinese factories implied shortage of key inputs for Indian engineering exporters. Additionally the strict lockdown within India resulted in the absence of labour and logistics. Exporters were unable to transport their finished products and raw materials to and from ports.

Amidst such issues, there is one silver lining for the Indian exporters – diversification of the global supply chains beyond China. As the pandemic first affected the industrial city of Wuhan, which caters to a significant percentage of China’s industry, global supply chains across several product categories including engineering faltered. Consequently, it highlighted the problems of over-dependence on China. As a result countries across the world are now looking towards diversifying their supply chains to countries other than China which may include Brazil, Mexico, India, other South Asian and Southeast Asian countries. This is already evident from the fact that we at EEPC India are in constant touch with our Missions abroad who are getting us connected to potential buyers in traditional as well as new markets. This is, therefore, a golden opportunity for the Indian engineering exporters to expand their footprint globally.

The question now remains whether the Indian exporting community is in a position to grab these new opportunities. Sadly the current scenario is not so positive. While both the central and the state governments have done a wonderful job in containing the pandemic, the lockdowns came at a severe economic cost to the exporters who are facing issues mainly in three areas: access to labour, logistics and capital.

The state governments are sceptical in issuing passes for workforce in the factories. Currently most of the states are only allowing permits to 10- 15 percent of the workforce whereas the industry’s requirement remains close to 35-40 percent.

Most engineering exporters in India are MSMEs. They are finding it very difficult to maintain their cash flow and make payments such as salary, rent, etc. While the RBI has allowed the banks to impose moratorium on loans, banks are slow in extending the benefits. Even when they extend, exporters are sceptical to avail the benefits since it may lead to significant interest burden. As the possibility of extension of lockdown becomes clear, the burden of payment is bound to increase and several companies may face solvency issues in the coming months. We feel that a moratorium along with an interest waiver scheme for at least a few months would prove to be beneficial for all industrial sectors in such a situation.

Finally, I would like to mention that, with the gradual opening up of the USA and EU countries such as Italy, Spain, and Germany, this is the most opportune time for the Indian engineering industry in the international markets. If India cannot gear up at this point, it may lose important markets to competitors. While we laud the Indian government for coming in support of the industry, we hope that further actions will be brought into force to alleviate the above-mentioned issues. With the support we are sure to turn the tide and take the current situation in our stride.

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