 "We need to address each factor impacting our competitiveness: S C Ralhan")
Indian exporters are worried at falling shipments and a slide in the rupee. S C Ralhan, president of the Federation of Indian Export Organisations, talks to Sanjay Jog on the situation. Edited excerpts:
India’s exports slumped in April from a year earlier, the fifth such month in a row. Why?
The decline is due to a combination of global and domestic factors. Global trade is contracting and each forecast is further reviewing it down. The softening of crude oil, metals and commodities prices in international market also played a role.
At home, manufacturing has not picked up on a sustainable basis. While data for one month seems promising, it disappoints us the next month. There is a correlation between manufacturing growth and export growth, a gap of about three months. Manufacturing declined in 2012-13 and grew only one per cent in 2013-14; therefore, exports also suffered in those years.
Second, there is huge volatility in the currency market. While the rupee depreciated against the dollar, it appreciated by about 20 per cent against the euro and 12-13 per cent against the yen. This has put lot of pressure on our exports to Europe, a fifth of the total. With a 20 per cent currency advantage, manufacturers in Europe have suddenly become competitive. India and many other countries are now losing to European manufacturers and suppliers in third countries, too.
Moreover, the logistics cost is blunting our competitive edge. The freight (cost) in carrying a container from Kanpur to the Jawaharlal Nehru Port Trust (Navi Mumbai) is many times costlier than carrying it from JNPT to a port in Europe.
A contraction of 14 per cent in merchandise exports is a major contributor.
This is because crude oil prices have come down, impacting our petroleum exports, down by 46 per cent, a sector which contributed to about a fifth of total exports. This itself explains a nine per cent dip. More, prices of most agricultural commodities are at the 2008 level and, thus, such commodities are exhibiting a downward value-wise trend. I am also worried at the decline in export of leather goods, gems and jewellery, marine products, meat, dairy and poultry, which have a very high capital to employment ratio. However, the growth in export of engineering, pharmaceuticals, chemicals, handicrafts and carpets augur well for the future.
Falling demand is a major worry. How can this be addressed?
We are not a major player in world trade; our share is less than two per cent. Therefore, even the contracted size of the cake offers much to us. My focus would be on marketing. Let us first show the world what we can offer. Many countries in the world are not informed of our competencies and capabilities. Some years before, Iran, our close neighbour, was not aware of our competitiveness in pharmaceuticals and the fact that a sizable size of our pharma export is to America and the European Union (EU). This is true for many sectors in many countries.
The government should agree to the FIEO demand for an Export Development Fund to support aggressive marketing, particularly by medium, small and micro enterprises, which struggle with financial liquidity and, thus, cut marketing expenditure.
China and Bangladesh are expected to grab markets where we might have consolidated further.
We lose our competitiveness due to high cost of credit, inefficient logistics, ground-level transaction costs and infrastructure inadequacies. We have to address each of these to compete with China, Bangladesh or any other low-cost country. Second, we have to look forward and enter into regional value chains and subsequently into the global value chain.
Why not export premium fabrics to Bangladesh, get it stitched there and export to the EU and other places to take the import duty advantage which Bangladesh enjoys as a Least Developed Country? The CMLV (Cambodia-Laos-Myanmar-Vietnam) countries offer a similar advantage, which can be exploited to do part-manufacturing into those countries to adhere to the rules on origin, to take full advantage of their free trade agreements with China or the EU.
India’s exports slumped in April from a year earlier, the fifth such month in a row. Why?
The decline is due to a combination of global and domestic factors. Global trade is contracting and each forecast is further reviewing it down. The softening of crude oil, metals and commodities prices in international market also played a role.
At home, manufacturing has not picked up on a sustainable basis. While data for one month seems promising, it disappoints us the next month. There is a correlation between manufacturing growth and export growth, a gap of about three months. Manufacturing declined in 2012-13 and grew only one per cent in 2013-14; therefore, exports also suffered in those years.
Second, there is huge volatility in the currency market. While the rupee depreciated against the dollar, it appreciated by about 20 per cent against the euro and 12-13 per cent against the yen. This has put lot of pressure on our exports to Europe, a fifth of the total. With a 20 per cent currency advantage, manufacturers in Europe have suddenly become competitive. India and many other countries are now losing to European manufacturers and suppliers in third countries, too.
Moreover, the logistics cost is blunting our competitive edge. The freight (cost) in carrying a container from Kanpur to the Jawaharlal Nehru Port Trust (Navi Mumbai) is many times costlier than carrying it from JNPT to a port in Europe.
A contraction of 14 per cent in merchandise exports is a major contributor.
This is because crude oil prices have come down, impacting our petroleum exports, down by 46 per cent, a sector which contributed to about a fifth of total exports. This itself explains a nine per cent dip. More, prices of most agricultural commodities are at the 2008 level and, thus, such commodities are exhibiting a downward value-wise trend. I am also worried at the decline in export of leather goods, gems and jewellery, marine products, meat, dairy and poultry, which have a very high capital to employment ratio. However, the growth in export of engineering, pharmaceuticals, chemicals, handicrafts and carpets augur well for the future.
Falling demand is a major worry. How can this be addressed?
We are not a major player in world trade; our share is less than two per cent. Therefore, even the contracted size of the cake offers much to us. My focus would be on marketing. Let us first show the world what we can offer. Many countries in the world are not informed of our competencies and capabilities. Some years before, Iran, our close neighbour, was not aware of our competitiveness in pharmaceuticals and the fact that a sizable size of our pharma export is to America and the European Union (EU). This is true for many sectors in many countries.
The government should agree to the FIEO demand for an Export Development Fund to support aggressive marketing, particularly by medium, small and micro enterprises, which struggle with financial liquidity and, thus, cut marketing expenditure.
China and Bangladesh are expected to grab markets where we might have consolidated further.
We lose our competitiveness due to high cost of credit, inefficient logistics, ground-level transaction costs and infrastructure inadequacies. We have to address each of these to compete with China, Bangladesh or any other low-cost country. Second, we have to look forward and enter into regional value chains and subsequently into the global value chain.
Why not export premium fabrics to Bangladesh, get it stitched there and export to the EU and other places to take the import duty advantage which Bangladesh enjoys as a Least Developed Country? The CMLV (Cambodia-Laos-Myanmar-Vietnam) countries offer a similar advantage, which can be exploited to do part-manufacturing into those countries to adhere to the rules on origin, to take full advantage of their free trade agreements with China or the EU.
Has the discontinuation of benefits/incentives in the new trade policy impacted exporters? What do you expect from the government to make exporters provide a level playing field?
Yes, the discontinuation of the benefits has affected exporters particularly those who are already supplying under a contract executed prior to April 1,2015. Moreover, many exporters, encouraged by Focus/ Special Focus market scheme and Focus Africa and Focus LAC ( Latin American countries) Scheme of the Commerce Ministry were working on sustained basis to enter into those markets firmly entrenched by China. When they have succeeded now, they have been taken aback as either the newly developed market is not covered under Merchandise Exports from India Scheme (MEIS) for their product or the benefits have been reduced from 4% to 2%. We have requested Government to continue with earlier benefits till September 30 this year or allow such companies benefits available under the previous policy, in cases where the contracts have been finalized before commencement of the new Foreign Trade Policy.