Exporters' profit margins under pressure even as demand picks up

Global recovery has aided the recent jump in merchandise exports, exporters said, adding that their profit margins could remain under pressure.

Merchandise exports nearly trebled in April to $30.63 billion over the same period last year. They grew 17.62 per cent compared to April 2019.

While the three-fold jump in exports was aided by a low base effect, growth was also on account of global recovery, with an increase in demand, especially from developed nations, particularly from the US and some European countries.

Exporters said order booking had been encouraging. Engineering goods, petroleum products, gems and jewellery, organic and inorganic chemicals, pharmaceuticals, readymade garments, and electronic goods accounted for more than two-thirds of exports in April.

Of these, engineering goods saw the biggest rise. However, rallying metal prices are likely to feed into higher input costs, affecting competitiveness, CARE Ratings said in a note.

“Petroleum exports have risen with declining global coronavirus cases fuelling recovery in international oil demand. With states imposing localized lockdowns of varying intensity and resultant impact on domestic mobility, an uptick in global oil demand appears to be a bright spot for India’s oil exports in the near term,” it added.

In April, non-petroleum and non-gems and jewellery exports, which give a better picture of the health of the export sector, were $23.62 billion, up 160.24 per cent year on year. Against April 2019, the segment grew by a fifth.

Exporters also said unit value realisation had gone up due to a rise in cost. Besides, a rise in commodity prices all over the world, especially prices of metals (used as raw materials), can result in a higher value of exports, with volumes remaining the same. “An increase in raw material prices is a global phenomenon. End-product prices have moved up, but not in the same proportion as the rise in input cost. Hence, profit margins are under pressure,” an official said.

Besides, steep freight cost is eating into the profitability of exporters to some extent. On the other hand, a sharp rise in exports in April and similar trend in the first week of May is giving hope that India’s merchandise exports can hit an ambitious target of $400 billion in FY22, Commerce and Industry Minister Piyush Goyal had recently said.

During 2020-21 (April-March), exports came in at $290.63 billion against $314 billion in 2019-20.

Ajai Sahai, director-general (DG) and chief executive officer (CEO), Federation of Indian Export Organisations (FIEO), said the $400 billion export target was achievable, but would require effort from all stakeholders. “In some sunrise sectors, particularly electronics, machinery, electrical, dairy products, toys, among others, we have done remarkably well in the last five years and can push exports further. Their export growth has outstripped import trends. For example, in electronics, the global market is booming and grew at a compound annual growth rate (CAGR) of 5 per cent in the five-year period of 2015 to 2019 (calendar year). But India’s CAGR was 14 per cent,” Sahai said.

Engineering and Export Promotion Council of India (EEPC) India Chairman Mahesh Desai said exports must be treated as essential service. Apart from this, there is also a need for more lending support from banks to address the liquidity issues faced by small exporters, Desai said.

While states such as Tamil Nadu and Maharashtra have made an exception, Karnataka, Haryana, and West Bengal, among others have largely allowed only essential services, putting pressure on the manufacturing side at the moment. Besides, with the extension of lockdown in several states, only limited staff is available at the factories.