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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.

The Government of India has published GDP figures for the first quarter of 2020 and, as expected, a significant contraction of economic activities was noted. This contraction was expected in line with the global economic contraction that has set in following the rapid spread of the Covid19 pandemic. However, India was expected to undergo a much sharper decline in GDP when compared to its peer countries such as Brazil and Mexico, which were equally if not more impacted by the pandemic. While the situation is not likely to improve drastically in the coming months given that the pandemic is still raging, experts are looking at all possible facets of recovery including the four pillars of growth – consumption, private investment, government expenditure, and exports.

In the coming months exports are bound to gain more importance in the country’s policy with the shift in the global supply chain towards more than one sources of input. Various experts believe that as MNCs look towards alternative sources apart from China, India can be a potential contestant. This has even come out in the recent speeches of the Prime Minister who has strongly advocated export augmentation and import substitution through an Atmanirbhar Bharat. In fact, looking at the export figures of the last few months, it is noticed that while exports surely fell in the first two months of the current fiscal, the rate of decline has come down in July in case of merchandise exports. Interestingly for engineering, July exports witnessed a 9 percent increase. Therefore, if properly backed by policies, exports, especially engineering exports, can go a long way in reviving India’s economy from the current stalemate.

In this context let me reiterate that while recent figures show a gradually recovering exports, in value terms the lower numbers indicate that the products are mainly in the low-value-added segments or lower price raw materials. Furthermore, surging prices of raw materials are also making Indian exports less competitive globally. Despite predictions of India being a big gainer in the post-Covid situation, several MNCs have chosen to transfer their operations to Vietnam or Taiwan during this period. Therefore, making Indian exports competitive should be the key objective of both government and industry.

Additionally, the government must look at strengthening its trade relations with its major export partners and forge new treaties with potential non-traditional partners. In this respect, the recent talks between India and the US regarding a mini trade deal is important. It needs to be borne in mind that US is a key trading partner for India and the topmost export destination. However, India is not among the top 10 suppliers to the US. Additionally, Indian exporters especially in the engineering sector underwent a significant blow when the US decided to withdraw GSP benefits. Reinstating the GSP benefits, one of the key aspects of the mini trade deal, can augment India’s share in the US import basket to a huge extent.

The US began moving away from its dependence on China since the last year with the US-China trade issues. Countries such as Mexico and Brazil have accrued the advantages of this shift due to longstanding FTAs with the US. At the same time, the US is currently looking to cement such mini trade deals, having recently signed one with the European Union. In this edition we bring you an assessment of the proposed US-India mini trade deal for a post-Covid world.

I would now bring your attention towards RoDTEP. This scheme was launched as a replacement to MEIS, which is a WTO-incompatible strategy. While MEIS has been restarted from September 2020 to December 2020, there are questions regarding its continuation and stability. The government has begun collecting data for RoDTEP and I would urge all my fellow exporters to submit their data to EEPC India to the earliest. In the absence of MEIS, RoDTEP will become crucial for exporters and your pro-activeness at this juncture will go a long way in augmenting your exports.

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