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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 I write this edit, both the Economic Survey and the Union Finance Ministry proposals are before me. The Finance Minister has projected 10 percent nominal growth in GDP for 2020-21 while the Economic Survey has projected a real GDP growth rate in the range of 6-6.5 percent for 2020-21. In fact, the RBI has kept the Repo rate unchanged at 5.15 percent and has projected a GDP growth rate of 6 percent for the next fiscal. This implies that our economic managers would like to keep the inflation rate (CPI) in the range of 3-4 percent in 2020-21. Given that the current rate of inflation is much higher, it seems the RBI will be hesitant to adopt any further accommodation in its monetary policy in the short run until the rate of inflation shows signs of moving southwards.

What about the budget proposals for the next fiscal? While I welcome, wholeheartedly, the Nirvik Scheme that entails the extension of insurance cover for exporters to 90 percent; lowering of rupee export credit loans to ~7.5 percent from the present 9-11 percent; foreign currency export credit interest rate to come down to 3.5 percent from the present 4-5 percent, as this will help in moving lowering the cost of export credit; there is, however, one proposal in the Income tax provision that is rather disconcerting. This pertains to the amendment of Section 206C of the Income Tax Act by Clause-93 of the Finance Bill 2020. By virtue of this Section, a seller with an annual turnover of Rs10 crore and selling goods to a person over Rs50 lakh during the year, will have to levy TCS at the rate of 0.10 percent if the buyer has a PAN or Aadhaar card or else they have to pay 1 percent. Thus, exporters will be required to pay 1 percent as foreign buyers do not have PAN or Aadhaar in India and there is no way foreign buyers will pay the TCS.

Also, since the seller is charging GST, which in most cases is 18 percent, it is not clear why the TCS of 0.1 percent has been added and will only add to the burden on trade. I have requested the Government to withdraw this provision, at least for the exporters.

On a different point I wish to draw our readers to what the Economic Survey says in volume 2, pages 100-02. I quote ‘In recent times India’s tariff regime have come under pressure from trade partners who seek a cut in the country’s basic customs duties. India has defended its tariff regime stating that it is necessary for protecting the vulnerable businesses in India. However, independent of trade partners, Government is aware that some reduction in tariff rates may have to be done in respect of intermediate inputs and raw material to correct the presently Inverted duty structure.’ The Survey then goes on to show that every time India’s imports of intermediate inputs have risen so have the exports of associated consumption goods with an elasticity of greater than 1. The Survey concludes on this point by saying ‘accordingly, a reduction in basic custom duty on intermediate inputs will not only correct the inverted duty structure creating the right incentives for boosting manufacturing but will also increase the growth of exports of consumption goods that significantly use imported intermediate goods.’ The reason I draw your attention is because we need to be alert to the tendency of protecting the raw and intermediate sector that can boomerang on the exports of our value-added sectors, as is the case in the engineering sector.

Finally, the export scenario remains a matter of concern. The outbreak of Coronavirus has further added to the uncertainty and disrupted supply chains to some extent. In fact, EEPC India participates as well as hosts global trade exhibitions both in India and abroad and could face challenges in organising such events. I do, therefore, hope that this epidemic will be brought under control at the earliest. It is in this midst I am happy to inform you that we hosted over 120 companies from India and Bangladesh at our trademark exhibition INDEE Bangladesh, 2020 held in January in Dhaka.

I hope our readers will enjoy reading this edition of the magazine and do write to us with your views and thoughts, as always.

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