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‘Rupee rise, uneasy trade relations with US impact engineering exports’

Abhishek Law Kolkata | Updated on July 28, 2019 Published on July 28, 2019

Ravi Sehgal, Chairman, EEPC India Debasish Bhaduri   -  Debasish Bhaduri

Protectionist measures in Europe, rupee appreciation, and uncertainty over trade relations with the United States have hurt India’s engineering exports.

While the April to June period has seen a nominal 2 per cent dip, indicative figures for July suggest a 7 per cent slide. Engineering goods account for 25 per cent, or one fourth of the country’s total merchandise exports. In FY19, engineering exports stood at around $81 billion.

According to Ravi Sehgal, Chairman, EEPC India, exports for the first three months of this fiscal (April to June) stood at $20.08 billion, against $20.46 billion in the year-ago-period.

“The April to June figure was not much of a worry as in the previous few months (January-March 2019) there was a surge in orders. So, it was expected to even out. However, what concerns us [the council] is that indicative figures for July that show a 7 per cent slide already,” he told BusinessLine.

The July-August period, and sometimes September, are said to be peak months for exporters. It is around this time that most orders come in or contract negotiations are carried out. A slowdown then sets the trend for the full year, said Sehgal. “In value terms, a monthly average export of $7 billion is what we are comfortable with. But if this falls to $6 billion or below, then it is worrisome,” he explained.

EEPC India, which is under the Union Commerce Ministry, has 13,000 members, most of which are MSMEs.

Global uncertainties

Apartfrom currency appreciation (rupee to the dollar), Sehgal also pointed out to global uncertainties that have forced a rethink in export orders from India.

Protectionist measures in Europe have been a niggling issue. Sanctions on Iran and the geo-political tensions surrounding it have also taken its toll, too. Adding to this is the withdrawal of GSP, or generalised system of preferences by the US.

“It is not that there is a slowdown in demand. But global buyers are postponing or rethinking before placing orders from India,” he explained.

For instance, Sehgal pointed out that orders that come in from the US are not based on projects, but depending on what these buyers would want to stock in advance. However, with the GSP being withdrawn and sentiments on India-US trade being jittery, new orders are slow.

“Many Indian exporters thought US-China trade tensions would benefit them. But it didn’t happen. China de-valued their currency and took steps to protect their exports and also marketed them well globally. Then, with GSP withdrawal happening, buyers from the US became cautious about India,” Sehgal pointed out.

There are other domestic issues at play, too. Most important among them are the high domestic steel prices, which may render Indian exports uncompetitive. EEPC India, its Chairman said, has been calling for sale of steel (from Indian steelmakers) at international prices, which, at present, continue to be lower than domestic ones.

Outlook

Sehgal is “personally optimistic” about exports picking up towards the latter half of the year. A decline in domestic steel prices will see exporters benefit in the coming months, particularly from August onwards. However, growth in engineering exports for FY20 is expected to be around 5-6 per cent.

“A stable currency, along with improving global scenario and government intervention, will lead to a 5-6 per cent growth this year. However, even if these ifs and buts don’t happen, we expect export growth to remain flat in the worst-case scenario,” he said.

Published on July 28, 2019
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