‘Exporters bank on Canada, Africa to offset dropping demand'

The slowdown in global economy and sharp rupee depreciation against dollar has put exporters in the doldrums. Hit by the Euro zone sovereign debt crisis, overall export growth in October slipped to a 10.8 per cent at $19.9 billion, the lowest increase since October 2009 when it fell to 6.6 per cent.

The growth in exports has been falling continuously over the last three months. In July it was 82 per cent, which declined to 44 per cent in August and then to 36 per cent in September.

Thanks to the robust performance during the earlier months, the cumulative export growth (including engineering) during April-October looked healthy at $180 billion, marking an increase of 46 per cent.

With the future uncertain, the task for Engineering Export Promotion Council of India, an apex body under the Union Ministry of Commerce and Industry, is clearly cut out. Mr Aman Chadha, Chairman, EEPC India, discusses the issues and prospects of exports in a chat with the Business Line .

Excerpts:

What are the prospects for exports in second half of this fiscal?

Except for minor hiccups, engineering exports so far have remained unscathed by the global economic slowdown. The next four to six months will be crucial as it will decide the future trend. The Government has set an engineering export target of $80 billion for this fiscal and we have achieved $51 billion till October. India reported engineering exports worth $60 billion last fiscal. We expect exports to reach $100 billion by FY13. We have not seen any order cancellation, but new order bookings in certain sectors are down 30-40 per cent, especially from the Euro-zone region.

What makes you so confident of achieving the target?

The EEPC has been exploring new markets such as the US and Europe, which contribute to nearly 40 per cent of our total exports. While the US is considered a big market for India, we missed out completely on Canada, which is considered next door to the US. Indian engineering export to Canada was a meagre $256 million in 2010-11, which amounts to only 0.56 per cent of our total exports while US accounts for 10.5 per cent. Canada was following a closed door economy and relied more on US imports. By tapping Canada directly we have lot of potential.

Which are the other new markets?

We have renewed our focus on some of the countries which have managed to withstand the current economic turbulence. We will target a few of them such as Latin America and African countries, particularly Brazil. We have the potential to sell high-end products in Africa. Colombia is another. In fact, 40 per cent of the taxis that run in Colombia are from India. So we have the potential to export more automobile components there. Though the Chile and Venezuela are difficult markets, we are confident of making inroads.

Has the rupee depreciation benefited exporters?

The huge depreciation along with volatility has made it difficult for exporters. Most of the exporters have not benefited as many of us have hedged receivable at Rs 46-48 levels. The swing in currency has deters long term decisions. The volatile rupee has the potential to wipe out the margin of 4 to 5 per cent enjoyed by exporters. Things will become more difficult if importers start demanding price re-negotiation of contract thinking that exporters are making a killing.

Will the new manufacturing policy help exporters?

At the outset the policy looks good, but the challenge will be on its implementation. Going by the drawbacks of SEZs (special economic zone), I doubt the success of cluster approach for developing manufacturing zones. Besides cost increase, availability of labour has been a major problem. Reform of labour law is the need of the hour. NREGA (National Rural Employment Guarantee Act) has boosted the aspirations of rural population.

Has the rise in lending rates hit exporters?

Yes, definitely. It has set back India a few notches when it comes to competitiveness in global markets. Finance costs are 12-15 per cent in India, while it is four per cent in China. Creaking infrastructure, especially congestion at ports add to the cost. Freight charges are 40-50 per cent more compared to that of China or Singapore. Shipments are held for 3-4 days in some cases. We have approached the Government to extend a Technology Upgradation Fund similar to that offered to textile companies. Besides subsidised lending rate, we want 10-15 year tenure for loans. China scores over India primarily because they are sound in technology. The Government has to consider our demand compassionately as 70 per cent of the engineering sector is dominated by SMEs (small and medium enterprises) which cannot afford high-tech machines on their own.

suresh@thehindu.co.in

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