China’s preoccupation with Covid-19, the Western world’s disenchantment with China and the consequent ‘China+1’ policy, has given a big opportunity for India to seize global markets. But to cash in on the opportunity for India, there are two essentials. The industry should increase manufacturing capacity; the government, on its part, should bring in a tax regime that ensures remission of all taxes, says Rakesh Shah, Chairman, Trade Facilitation, Engineering Export Promotion Council (EEPC). 

“To get to China’s kind of volumes, we need capacity,” Shah told businessline on Friday. India’s engineering exports in April–December 2022-23 fell 3.03 per cent over the corresponding period of 2021-22—to $79.83 billion compared with $82.32billion previously. December’s exports were pretty bad, down by 11.89 per cent to $9.82 billion, EEPC’s figures say. 

Shah observed that since the Ukraine war broke out, engineering exports to the US and Europe have suffered, because of the slowdown in the region. “The China+1 advantage that we were enjoying pre-March has slowed down because the market is not taking goods,” he said. (‘China+1’ refers to the recent proclivity of the Western world to have a country other than China as a source of goods or investment destination). 

Agreeing that the slowdown in exports due to Europe’s and US’ economic woes could be temporary, Shah said that India should have enough manufacturing capacity to grab opportunities as they arise. He said that the government’s decision, in November, to scrap the 15 per cent export duty on steel had hurt engineering exports, because the move increased the prices of steel.

‘Not enough’

He noted that steel companies sold in the export markets at lower prices than in the domestic market. In the long run, India’s steel manufacturing capacity should go up in order to be able to cater to both domestic and international markets. Shah said that while steel capacity has been going up in the last five years, “it is still not enough”. 

He called for a full remission of taxes paid on inputs that lay embedded in the products’ costs. The RODTEP scheme, he observed, pays back only a few taxes. For example, in West Bengal, there is an electricity duty of 15 per cent, which is not paid back to the exporters. Taxes add to the costs and make Indian products less competitive. 

Asked about the ‘carbon border adjustment mechanism’ that the EU is trying to bring in (a levy for carbon dioxide emissions that goods imported into Europe may have caused during their production), Shah said was a “regressive measure” and another tariff barrier. Russia, India, China, Turkey and Brazil would be affected, he said. “Surprisingly, when EU is burning coal (because gas is not available) for heating, it is talking of carbon tax,” he said. Noting that the mechanism is slated to come into force from October 2023, Shah said, “let’s see how it is implemented”, adding that it would definitely impact Indian engineering goods exports to EU.

FTAs are good in the long run 

On Free Trade Agreements, Shah said they would be good for India in the long run. One of the India’s earliest FTAs was with Thailand, a country that competes with India. The FTA has proved to be beneficial to India, he said. On the Indo-Australia FTA, which came into force on December 29, 2022, he said the results are yet to be seen. Shah also welcomed rupee trade. “I’m very excited about it,” he said, adding that India would be able to trade more with countries like Russia, Sri Lanka and Myanmar.