Engineering exports recover gradually

While engineering exports continued to grow in July 2020, the outlook is not optimistic on global trade recovery. Apprehensions remain for MSME exporters due to various developments, among them the sudden steep hike in steel prices and the withdrawal of the MEIS scheme

POLICY WONK

ENGINEERING EXPORTS

The monthly engineering figures for 2020- 21 vis-à-vis 2019-20 are shown in Table1 and Figure1 as per the latest DGCI&S estimates.

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Source: DGCI&S, Govt of India

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Correlation between manufacturing production and engineering exports

The engineering sector is an important component of the broader manufacturing sector and the share of engineering production in overall manufacturing output is quite significant. As exports generally come from what is produced within a country, some correlation between manufacturing production growth and engineering export growth should exist. We briefly looked at the trend in manufacturing growth as also engineering exports growth to see if they move in tandem. It may be mentioned that manufacturing has 77.63 percent weightage in India’s industrial production.

During fiscal 2019-20, engineering exports growth and manufacturing growth moved in the same direction in as many as nine out of 12 months, including March 2020. The first three months of fiscal 2020-21 saw both of them moving in the same direction as gradual moderation was noticed for both after sharp decline in April 2020 as depicted in Table2.

We also present the month-wise corresponding revised engineering exports for 2019-20 as opposed to 2018-19 in Table3.

Impact of exchange rate

How did the exchange rate fare during July 2020 and what was the recent trend in rupee-dollar movement? In order to get a clearer picture of the recent rupee-dollar trend, we not only took the exchange rate of July 2020, but considered each month of fiscal 2019-20 and 2020-21 and looked at the movement of monthly average exchange rate of rupee vis-à-vis the dollar as mere one month figure does not determine the trend. Table4A and Figure2A depict the shortterm trend clearly:

Rupee continued to weaken y-o-y in July 2020 but the month-on-month analysis showed weak recovery in the last three months

The y-o-y comparison showed that depreciation of the rupee moderated slightly in July 2020. The movement of rupee vis-à-vis the greenback was broadly in the confined range of 75.00-76.20 levels.

Outlook does not seem so gloomy

The pandemic-led sell off in the domestic capital market seems to have stabilised. RBI has also been accumulating foreign exchange reserves and has taken it to near the all-time high levels. Current Account is expected to yield a surplus during the last completed quarter. These factors, coupled with the prospects of foreign inflows led by Reliance may help the rupee escaping any sharp downtrend in the near term and moving towards a slow recovery instead. However, possibilities of sharper US-China confrontation, any escalation in the India-China tensions and further adversities arising out of the ongoing pandemic cannot be ruled out as deterrents to a smooth recovery of the rupee.

Overall Scenario Merchandise trade

Decline in exports moderated further in July 2020
  • Merchandise exports in July 2020 were recorded at $23.64 billion, as compared to $26.33 billion in July 2019, exhibiting negative growth of 10.21 percent. However, the decline was much lower than 12.41 percent in June, 36.47 percent in May and 60.28 percent in April 2020. This gradual improvement was attributed to full or partial unlocking of essential economic activities worldwide and subsequent rise in global demand. In rupee terms, the yearon-year decline in exports during June 2020 was 2.14 percent.
  • Major commodities which recorded positive growth during July 2020 vis-à-vis July 2019 are other cereals (204.99), rice (47.99), iron ore (39.61), oilseeds (32.61), oil meals (28.44), meat, dairy and poultry products (22.14), fruits and vegetables (21.01), drugs and pharmaceuticals (19.53), coffee (14.27), cereal preparations and miscellaneous processed items (12.92), ceramic products and glassware (9.72), and engineering goods (8.46) percent respectively, among others. On the other hand, petroleum products (-51.54), gems and jewellery (-49.61), leather and leather products (-26.96), manmade yarn/fabs/madeups etc. (-23.33), RMG of all textiles (-22.09) percent respectively, continued to see decline in exports.
  • Cumulative value of exports for the period April-July 2020-21 was $74.96 billion as against $107.41 billion during the same period last fiscal, registering 30.21 percent decline in dollar terms and 24 percent in rupee terms.
  • Imports in July 2020 were $28.47 billion, which was 28.4 percent lower in dollar terms over imports of $39.76 billion in July 2019. In rupee terms, the decline was 21.96 percent.
  • Cumulative value of imports for the period April-July 2020-21 was $88.91 billion as against $166.80 billion during the period April-July 2019-20, registering a negative growth of 46.7 percent in dollar terms and 41.94 percent in rupee terms.
  • Trade deficit declined by 64.04 percent during July 2020 as it narrowed down to $4.83 billion during July 2020 from $13.43 billion in July 2019. On a cumulative basis, the decline was 76.51 percent to $13.95 billion from $59.39 billion during April-July 2019-20.
Engineering exports from India returns to growth path in July 2020
  • In a noticeable development, engineering exports from India returned to the growth path in July 2020 with a 9.08 percent increase over the same month last fiscal. During the months of June, May, and April 2020, engineering exports conceded 6.37, 22.96, and 63.43 percent respectively on y-o-y decline. Engineering exports during July 2020 stood at $6411.28 million as against $5877.77 million in the same month last fiscal.
  • On a cumulative basis, however, engineering exports continued to decline. Cumulative engineering exports during the first four months of 2020-21 were recorded at $20,147.01 million as against $25,722.75 million during the same period last fiscal, registering a decline of 21.68 percent.
  • Share of engineering in total merchandise exports was 27.12 percent in July 2020 as against 26.57 percent in June 2020, 28.72 percent during May, and 22.33 percent in April 2020. On a cumulative basis, the share was recorded at 26.88 percent.
  • Out of 33 engineering panels, 17 panels recorded negative growth and 16 panels recorded positive growth in exports during July 2020 vis-à-vis July 2019. In cumulative terms, 28 out of 33 panels exhibited y-o-y decline in exports.
  • During June 2020, exports to 14 nations out of India’s top 25 export destinations for engineering products recorded positive monthly growth in comparison to July 2019. USA has retained its top position of being the numero uno destination for India’s engineering products during April-July 2020-21.
July engineering imports down by 37.7 percent
  • India’s engineering imports during July 2020 were valued at $5.57 billion compared to $8.93 billion in July 2019 recording a significant negative growth of 37.7 percent in dollar terms.
  • The share of engineering imports in India’s total merchandise imports during July 2020 has been estimated at 19.6 percent
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Source: Department of Commerce and CSO

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*Revised data
Source: DGCI&S

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Source: RBI, FBIL, EEPC Research

Rupee-dollar trends in 2019-20 vis-a-vis 2018-19:

During 2019-20, the rupee depreciated over the dollar between April to August 2019 but at a narrowing rate over the month and then witnessed some appreciation in the next three months. December 2019 to February 2020 again saw marginal depreciation of rupee over the greenback but the month of March 2020 saw a record low of the rupee as the pandemic started taking toll on investors’ sentiment. Table4B and Figure2B may provide a clearer picture.

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Source: RBI, FBIL, EEPC Research

Top 25 engineering export destinations

We now look at the export scenario of the top 25 nations that had highest demand for Indian engineering products during April-July 2020-21 over April-July 2019- 20.

India’s top 25 engineering export destinations: Some observations
  • Six out of 25 countries recorded positive cumulative growth in engineering exports during April-July 2020-21 over April-July 2019-20; and 14 out of 25 countries recorded positive monthly growth in July 2020 over July 2019, which is an improvement over the last month’s performance where 10 countries recorded positive monthly growth.
  • USA has once again ranked as the numero uno destination for India’s engineering products during April-July 2020-21 over April-July 2019-20, like the previous month.
  • Like before, China ranked as the second destination for India’s engineering products during April-July 2020-21 over April-July 2019-20, registering a very high positive cumulative growth as well as positive monthly growth during July 2020 over July 2019.
  • In a similar fashion Singapore also ranked as the third destination for India’s engineering products during April-July 2020-21 over April-July 2019-20, registering positive growth like the previous month.
  • After China, Vietnam recorded the highest positive cumulative growth for India’s engineering products during April-July 2020-21 over April-July 2019- 20. Indonesia recorded the highest positive monthly growth for India’s engineering products during July 2020 over July 2019, after China.
  • Among the European nations under India’s top 25 engineering export destinations Germany, Italy, France, and the Netherlands recorded positive monthly growth in July 2020 over July 2019.
  • Among the ASEAN countries under the top 25 engineering exports destinations, Vietnam, Malaysia, Indonesia, and Singapore recorded positive growth during April-July 2020-21 over April-July 2019-20, while Thailand recorded moderate negative growth during the same period.
  • The share of India’s engineering exports to its top 25 nations accounted for 78.1 percent of India’s total engineering exports in April-July 2020-21.
  • India’s engineering exports to its top 25 destinations during April-July 2020- 21 over April-July 2019-20 recorded high negative growth, which is, however, less in comparison to the negative growth in India’s total global engineering exports during the same period.

Region-wise India’s engineering exports

Table6 depicts region-wise India’s engineering exports for April-July 2020-21 as opposed to April-July 2019-20.

Region-wise engineering exports: some observations
  • ASEAN+2 once again recorded as the region with highest shipment of engineering products from India during April-July 2020-21 over April-July 2019-20 with a share of more than 21 percent of total engineering exports.
  • India’s exports to NE Asia and North America ranked second and third in global shipments of Indian engineering goods in April-July 2020-21 with a share of 17.8 and 16.1 percent respectively of total engineering exports.
  • EU ranked fourth in global shipments of Indian engineering goods in April-July 2020-21 with a share of 15.8 percent.
  • Northeast Asia is the only region to have recorded high positive monthly and cumulative growth in exports of engineering products from India during April-July 2020-21 over April-July 2019-20, like before. ASEAN+2 recorded significant positive cumulative growth in exports of engineering products from India during April-July 2020-21 over April-July 2019- 20 unlike the previous month. All other regions recorded negative growth due to the vast disruption in commerce and trade on account of Covid19.
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Source: Department of Commerce, Government of India

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Source: Department of Commerce, Government of India
Note: *Figures have been rounded off. **Myanmar has been included in ASEAN+2 and not in South Asia, since ASEAN is a formal economic grouping

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Source: Data from DGCI&S and EEPC India analysis

Panel-wise engineering exports

We begin by looking at the engineering panel-wise exports for the month of July 2020 vis-a-vis July 2019 as well as April-July 2020-21 vis-a-vis April-July 2019-20. The data is given in Table7.

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Source: DGCI&S

Panel-wise engineering exports: Some observations

  • After a dismal performance in the first two months of the current fiscal, mainly due to the pandemic, India’s engineering exports started showing signs of recovery since June. While total exports still declined in June, the rate of decline was much lower than that of the previous two months. Contrarily in July 2020, India’s engineering exports recorded significant growth of 9.08 percent given the fact that the pandemic still continues to impact global trade and economy negatively. In cumulative terms though due to the massive export decline in April and May 2020, engineering exports for the first four months of 2020 declined at 21.68 percent.
  • Among major panels, a steady growth was noticed in exports from ferrous and non-ferrous sectors which grew both in monthly and cumulative terms.
  • Exports of iron and steel recorded massive increase on account of rise in Chinese demand. This overcrowded the export decline in the products of iron and steel segment thereby increasing exports of the total group by 36.48 percent. The total segment also recorded in 13.74 percent jump in exports in cumulative terms.
  • The same pattern is also reflected in case of other non-ferrous metals barring Nickel as their exports jumped on the back of rising demand in China. Both monthly and cumulative exports changes remained positive at 20.86 and 12.61 percent respectively.
  • Within industrial machinery, although overall there was a decline in the monthly exports at 0.2 percent, the decline was much lower than that of the previous months. Recovery was noticed in segments including industrial machinery for boilers (5.3), IC engines (2.5), pumps (2.07), and industrial machinery for food processing and textiles (2.3) percent respectively. However, exports remained subdued for air-condition and refrigeration machinery (15.1 percent), machine tools, and others. In cumulative terms the growth was definitely negative given the significant decline in exports that the sector had to suffer in the last few months.
  • The electrical machinery segment showed recovery in June 2020 itself. In July too, exports grew as demand in top export destinations remained buoyant. The sector grew in monthly terms while the growth still remained negative in cumulative terms given the sharp decline in exports the sector had to face in the first two months of the current fiscal.
  • Unlike other sectors which showed some signs of recovery in July 2020, exports in the entire automobile sector remained negative, both in monthly and cumulative terms due to subdued demand in all major markets.
  • While exports of aircraft, spacecraft and parts declined in both monthly and cumulative terms, there was a significant rise (more than 150 percent) in July exports of ships, boats and floating structures. The increase was majorly attributed to significant rise in exports to Singapore and Sri Lanka.
  • In the rest of the engineering segments, while there was decline in almost all, slight increase in monthly exports was noticed in case of medical instruments (2.54) and hand tools and cutting tools (2) percent respectively.

ENGINEERING FERROUS AND NON-FERROUS PRODUCTS WITH NEGATIVE GROWTH IN MAY 2020

  • Exports of products of iron and steel under Chapter 73: fell by 10.71 percent in July 2020 and 34.54 percent in April-July 2020-21.
  • Exports of nickel and products under Chapter 75: fell by 6.26 percent in July 2020 and 69.3 percent in April-July 2020-21.
Data for ferrous and non-ferrous panels experiencing a decline in the month of July 2020 vis-à-vis July 2019
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Slump in products of iron and steel exports

Figure4: Slump in products of iron and steel exports, July 2020 v/s July 2019 ($ million)

MAZ0605202011552715760-oversight-Figure4

Reasons for the fall

The top import destinations for the products of iron and steel are majorly North America, Europe, and West Asia. These markets are still reeling from the pandemic and in many instances buyers have come back to the market after significant period of lockdown. Hence business sentiment is still subdued in these markets, which is causing a decline in exports. This is unlike the trend in iron and steel exports which recorded a massive high due to increased demand in China. Apart from the demand issue faced by the exporters of iron and steel products, a surge in demand for raw materials such as iron ore in China have created an upward pressure on key input prices. This is also affecting the exporters’ margins during demand deficiency.

Slump in exports of Nickel and its products

Figure4: Slump in iron and steel exports in February 2020 v/s February 2019

MAZ0605202011552715760-oversight-Figure4

Reasons for the fall

A drop in exports of nickel by Philippines in the first half of 2020 created an upward pressure on the LME prices of nickel. This affected the profitability of Indian exporters. However, since the stainless steel demand across the world is expected to stabilise spearheaded by a sharp rise in demand in China, the situation may revive in the coming months.

Engineering panels – country-wise analysis

We now analyse the performance of some of the important products during July 2020. We have taken the major panels and computed the top importers and sharp declines to get an idea of the current trade pattern. (Tables 10-18)

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Source: Department of Commerce Government of India

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Source: Department of Commerce Government of India

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Source: Department of Commerce Government of India

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Note: Automobiles sector includes motor vehicles and two- and three-wheelers
Source: Department of Commerce Government of India

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Source: Department of Commerce Government of India

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Source: Department of Commerce Government of India

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Source: Department of Commerce Government of India

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Note: Export figures in case of some nations are showing zero due to rounding off but actually they are very small in value
Source: Department of Commerce and CSO

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Source: Department of Commerce and CSO

Export of iron and steel
  • China, Vietnam, and UAE were the top three importers of Indian iron and steel during April-July 2020-21 with market shares of 35.95, 12.92, and 6.06 percent respectively.
  • China recorded monumental growth of 1019.82 percent followed by Indonesia and Thailand at 148.06 and 140.52 percent respectively in exports of Indian iron and steel during April-July 2020-21 compared to April-July 2019-20.
  • Nepal, Malaysia, and Bangladesh experienced sharp fall of more than 50 percent in exports during April-July 2020-21 compared to same period last fiscal.
Export of products of iron and steel
  • USA, Canada, and UAE were the top three importers of India’s products of iron and steel during April-July 2020-21 with 19.06, 6.95, and 6 percent shares respectively in India’s global exports of the same
  • Indonesia experienced more than 124 percent growth followed by Egypt and Oman in imports of products of iron and steel during April-July 2020-21.
  • Nigeria, Bangladesh and France con - ceded substantial decline in imports by more than 55 percent for the product group from India during April-July 2020- 21.
Export of industrial machinery
  • USA was the largest importer of Indian industrial machinery during April-July 2020-21 with 15.81 percent share in In - dia’s global imports of the product group. China and Thailand were the two imme - diate followers with 6.09 and 4.94 percent shares respectively.
  • Georgia, South Sudan, Suriname, and Togo were among the major importing nations witnessing growth of more than 200 percent in imports of industrial ma - chinery from India followed by Latvia and Benin during April-July 2020-21 over the same period last fiscal.
  • Among the major importers, Bangla - desh, Italy, and Nigeria recorded over 45 percent y-o-y decline in imports during April-July 2020-21.
Export of automobiles
  • Mexico, Saudi Arabia, and South Afri - ca were the top three importers of India’s automobiles during April-July 2020-21 with 18.4, 8.54, and 8.08 percent share in India’s global exports respectively over the same period last fiscal.
  • Sudan recorded a meteoric growth of more than 750 percent followed by Aus - tria and Egypt with more than 100 per - cent growth in imports of the product group from India during April-July 2020- 21 over the same period last fiscal.
  • Indonesia, Bangladesh, Nepal, USA, and South Africa saw their imports of au - tomobile lower by more than 60 percent during April-July 2020-21 compared to same period last fiscal.
Export of non-ferrous metals
  • Malaysia, Korea, and China were the top three importers of India’s non-ferrous metals and products during April-July 2020-21 with 20.34, 18.58, and 14.17 per - cent shares respectively in India’s global exports of the same.
  • Singapore experienced massive growth of more than 359 percent followed by China and Malaysia at 253.87 and 102.37 percent respectively in imports of non-ferrous metals and products during April-July 2020-21.
  • Italy, Mexico, and Nepal conceded sub - stantial decline in imports by more than 55 percent for the product group from India during April-July 2020-21 vis-à-vis same period last fiscal.
Export of electrical machinery and components
  • USA, Germany, and UAE were the top three importers of Indian electrical ma - chinery and components during April-Ju - ly 2020-21 with market shares of 39.15, 10.54, and 3.62 percent respectively.
  • New Zealand recorded massive growth of 1813.75 percent followed by Hong Kong and Japan at 318.97 and 187.66 per - cent respectively in imports of India’s elec - trical machinery and components during April-July 2020-21 vis-à-vis April-July 2019-20.
  • UK and Mexico experienced sharp de - cline of more than 70 percent in imports in April-July 2020-21 when compared to April-July 2019-20. It was also the case for Poland and Singapore which experienced more than 50 percent drop.
Export of aircrafts and spacecrafts
  • USA, France, and UK were the top three importers of India’s aircrafts and space - crafts during April-July 2020-21 with around 35.48, 12.05, and 11.1 percent shares respectively in India’s total global exports of the product.
  • Ireland and UAE registered substantial growth of 428.59 and 150.95 percent re - spectively in import of the product group from India during April-July 2020-21 as compared with the same period last fiscal.
  • On the flipside, demand for India’s aircrafts and spacecrafts from Malaysia, UK, USA, Singapore, and France dropped more than 40 percent on a y-o-y basis dur - ing April-July 2020-21 when compared to April-July 2019-20.
Export of ships, boats and floating structures and parts
  • Singapore, Indonesia, and UAE became the largest importers of ships, boats and floating structures followed by Malaysia and Gibraltar. Their respective shares were 35.57, 15.87, 11.53, 9.97, and 7.29 percent.
  • Though Malta recorded negligible im - ports in July 2020, cumulative imports to Malta recorded meteoric increase as they had negligible imports in April-July 2019-20. Indonesia registered substan - tial growth of 325.05 percent in imports of the product group from India during April-July 2020-21 as compared with the same period last fiscal.
  • However, sharp decline of more than 70 percent was noticed in exports to UAE from India during April-July 2020-21 as compared with the same period last fis - cal, while exports dropped to zilch for Cyprus, Liberia, and Norway.
Export of auto components
  • USA remained the top importer of auto components in April-July 2020-21 with a share of 22.7 percent. It was followed by Turkey, Germany, Vietnam, and Bangla - desh with respective shares of 6.9, 6.18, 5.3, and 4.3 percent.
  • Congo recorded maximum increase of more than 260 percent followed by Uz - bekistan and Slovenia in imports over April-July 2020-21 when compared to April-July 2019-20. However, absolute figures are not very convincing for any of the nations.
  • UAE, Brazil, and Thailand recorded sig - nificant decline of more than 60 percent in April-July 2020-21 when compared to April-July 2019-20.

ENGINEERING IMPORTS

India’s engineering imports during July 2020 were valued at $5571.34 million compared to $8938.17 million in July 2019, registering negative growth of 37.7 percent in dollar terms.

Cumulative engineering imports during April-March 2019-20 were recorded at $100.55 billion as against $111.21 billion during the same period last fiscal,l registering a fall of 9.6 percent.

The share of engineering imports in India’s total merchandise imports during July 2020 has been estimated at 19.6 percent.

The monthly engineering import figures for fiscal April-July 2020-21 vis-avis April-July 2019-20 are depicted in Table19 and those for fiscal April-March 2019-20 vis-a-vis April-March 2018-19 are depicted in Table20 as per the latest availability of data. Figure6 depicts engineering imports for April-July 2020-21 compared to April-July 2019-20.

We now present the trend in two-way yearly trade for the engineering sector from 2014-15 to 2019-20 as well as the current fiscal 2020-21 depicted in Table21. Figure13 depicts the yearly trend in engineering trade from 2014-15 to 2019-20.

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Source: Department of Commerce, Government of India

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Source: EEPC India analysis

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Conclusion

In July the situation turned somewhat optimistic as decline in merchandise exports continued to narrow down over the previous fiscal. While the trade balance went back to its usual deficit status after an extremely rare surplus in June, the resurgence of non-oil exports is noteworthy. At -4 percent, non-oil exports are on the way to growth.

Engineering exports from India came back to growth path for the first time after the Covid pandemic started damaging economic prospects across the globe. During July 2020, the 9 percent y-o-y growth of engineering exports was basically driven by higher exports of iron and steel, most of the other non-ferrous metal and metal products, ships, boats and floating structures, and electric machienry and equipment.

Although, a one-month performance cannot establish a trend and a little bit of base effect has also helped to achieve this growth, it is observed that engineering exports have been gradually improving in the last few months. Strategic relaxation of lockdown or strategic unlocking of economic activities has definitely contributed to higher shipments. Cumulative performance is still showing negative growth but continuation of this improving trend in engineering exports may reverse the situation by the end of the ongoing fiscal.

The global economic as well as trade scenario has not seen any noticeable improvement as of now. Rather, analyses and predictions of the experts say the opposite. The situation may worsen as the pandemic does not show any signs of abating in the near future. Almost all international organisations predict a deepset recession for the global economy in 2020. As the world gradually comes to terms with the new post-Covid normal, trade emerges as one of the most important factors to instil confidence in the global economy.

The OECD predicts against the background of a rapidly spreading pandemic wreaking havoc on the global economy, that trade has to be continued to ensure smooth supply of essentials and to send a signal of confidence to the global economy. However, to keep trade flowing mutual trust and cooperation among different trade partners will be essential in the near future. Implementing several import restrictions, protectionist measures, and trade tensions such as the US-China trade war are also apprehended to weaken the prspects of revival of both trade and economy.

The recent unexpected hike in steel prices by Indian steel companies on the back of the rise in international steel prices and sudden rise in global demand has added to the woes of the engineering sector as steel is the singlemost important input for engineering products. EEPC India has urged for immediate government intervention in this connection to ensure availability of steel at the export parity price especially for MSME engineering as this rise in prices will simply make them less competitive in the global market and their survival will come into question in turn.

Moreover, as most of India’s engineering sector comprise MSMEs who do not have adequate access to capital or technology, the government needs to take necessary steps to address these concerns in order to help Indian MSME engineering escape the adverse effect of this pandemic and ensure higher contribution to engineering exports of India.

Blockage of the MEIS scheme is also a matter of serious concern for the exporting community. The scheme was extended in March 2020 and it was on that basis that exporters had priced their products from 1 April 2020 when suddenly on 23 July 2020, the DGFT website blocked the uploading of shipping bills and that came as a shock to the exporting community. Even now the exporters do not know the fate of the MEIS scheme and this should be clarified by the government at the earliest. In order to ensure growth in exports during this difficult period, the government should reconsider the decision and should ensure the benefits in place for the exporters.

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