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SPECIAL FEATURE: Indian export sector: treading with hope in hour of crisis |
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Indian export sector: treading with hope in hour of crisis
According to Yaga Venugopal Reddy, former Governor of India’s central bank, Reserve Bank of India (RBI), India should emerge from the current economic downturn ahead of developed economies. Significantly, he says that export revival would play a crucial role in the recovery as slumping external demand was the main reason for the economic slowdown in India. This underscores the importance of the Indian export sector even though it lost some of its sheen in the wake of global financial meltdown. Exports contribute around a fifth of the country’s Gross Domestic Production (GDP) and therefore it is only natural that its contraction would have adversely impacted factory output and overall economic growth.
Since October, RBI has aggressively cut down its lending rate by 425 basis points to boost different sectors of the economy, while the government offered interest subsidies to help exporting firms directly bearing the brunt of recession and falling overseas demand. According to G K Pillai, Commerce Secretary, in April 2009 India’s exports dropped for the seventh month in a row with a sharp fall of 33 per cent compared to the same period in 2008. However, exports remained robust during the first half of FY-09, growing by 31 per cent in April-September 2008. Since then, however, the global credit crunch and recessions in India's major overseas markets have caused a major setback. As a whole, in the financial year 2008-09, India’s exports grew by 3.4 per cent at US$168.7 billion, with March alone registering a 33.3 per cent drop on year-on-year basis.
Holding ground amidst slumping overseas demand: However, considering the World Trade Organisation’s (WTO) forecast of 9 per cent contraction in global trade in FY 2010 and World Bank’s forecast of a 6.1 per cent shrink for the same period, the outlook of some of India’s prime export sectors looks substantially positive.
At a time when auto majors across the world are struggling to stay afloat, car manufacturers from India have succeeded in expanding their overseas presence with car exports from India registering a phenomenal 57.04 per cent growth in FY-09. Figures released by the Society of Indian Automobile Manufacturers (SIAM), reveal that exports of passenger car from India touched 3,31,539 units in FY-09 as opposed to 2,11,112 units in FY-08. Overall vehicle exports from the country touched 15,30,660 units in FY-09 over 12,38,333 units in the previous fiscal - a jump of around 23.60 per cent. At a time when recession has reduced purchasing power, cost competitiveness of Indian cars and increased global focus on energy-efficient models have been two major contributors in ramping up India’s car exports.
According to a recent official release of Government of India, exports from Special Economic Zones (SEZs) in the country rose from Rs 66,638 crore in FY-08 to Rs 90,416 crore in FY-09, registering a strong growth of 36 per cent. The growth of exports from SEZs has been much higher than the overall growth in country’s exports over the years. They have grown 552 per cent over the last five years starting FY-04. As per government estimates, a total number of 91 SEZs are exporting from India at present, out of which 43 are in the IT/ITes sector, 13 are multi-products, while the remaining 35 are sector-specific SEZs. Even during the current economic crisis, Indian SEZs have not only continued to register impressive growth but also continue to attract substantial investment and generate employment. In India, SEZs and Export Oriented Units (EOUs) have emerged as integral part of country’s export-led industrialisation strategy, offering a platform for attracting export-oriented foreign direct investments (FDI) to promote the manufacturing sector.
India’s IT-ITes sector has showed much resilience during the last financial year, even though the US and UK, constituting around 81 per cent of India’s computer software and services exports, are the worst affected from the global financial crisis. India registered 16 per cent export growth during FY-09, despite the fact that largest chunk of country’s IT exports are to the financial and banking sectors, which are devastated by economic downturn. In fact, the state of Kerala has registered an astounding growth of around 45 per cent in IT exports in last fiscal. Though moderate, the overall export growth in India’s IT-ITes sector indicates that the global credit crunch has affected the manufacturing sector much harder than service providers. Even if budget-conscious consumers stop splurging on consumer durable, corporate houses can never do away with essential outsourced services, including tele-calling, book keeping and purchase of software services. This gives credence to India’s software industry body, NASSCOM’s hope that recession will result in even more IT off-shoring as cost-effectiveness is on the top of corporate agenda.
Affected sectors on rebound mode: In India, the sectors which have been battered most by the vagaries of global financial crisis and subsequent slump in demand are gems and jewellery, textiles and apparel and leather. However, these sectors are showing signs of recovery, along with other affected ones, adding much hope in terms of India’s export growth in FY-10. The recession has given them the opportunity to introspect, realign strategies and explore unconventional markets to enhance overseas penetration.
For the gems & jewellery industry exports of coloured gemstones, diamond, pearls, synthetic stones and non-gold jewellery have fallen drastically, resulting in huge job losses. The Gems & Jewellery Export Promotion Council (GJEPC), the prime trade body for the sector, is looking to explore the Middle East market with its 'Brand India' campaign, in addition to its promotional efforts in China, CIS and Vietnam. The body is confident that there are several untapped market like, North and South Korea, Brunei, Ireland and New Zealand which can give Indian gems and jewellery exports the desired impetus.
Recession-hit textiles industry is also looking to explore possibilities in new market. As a result of persistent initiatives, the sector has recently received positive response from Argentina, which is eyeing investments into country’s textiles industry. As many as 34 Indian companies received export orders at a recently-held exhibition and buyer and seller meet in Buenos Aires. According to Indian ambassador to Argentina, Uruguay and Paraguay, R Viswanathan, “…Our textile exports in 2008 were $ 90 million dollars, but we are hoping to increase it to $ 300 million in the next three years.” At present, exports to Argentina constitute a meager 0.18 per cent of India’s total exports, while imports from it constitute only 0.36 per cent of India’s total imports. Indian products are likely to find greater access in Argentina once the Preferential Trade Agreement (PTA) with Mercosur, of which Argentina is a member, come into force on June 1.
Commerce Secretary GK Pillai is of the view that leather and agricultural exports are also showing revival. In an interview on CNBC-TV18, he said, “exports of sectors like leather are showing some recovery - we have got the figures now of the last three months and last year we had grown at 3% in dollar terms and 19% in rupee terms for the leather sector, which is a labour intensive sector.” According to Habib Hussain, Chairman of the Council of Leather Exports, despite slowdown in US and EU, major importers of leather goods, leather exports from India grew 20 per cent in the first half of FY 09, registering a 20 per cent rise over the previous year. Deceleration in Indian handicrafts exports also seems to be bottoming out, as shipments in April dropped at a lower rate compared to March, 09. Export Promotion Council for Handicrafts (EPCH) Chairman, Mr R K Malhotra said, “We have been able to arrest the dip in exports to a certain extent and we are hoping that the scenario will only get better from now on,''.
Government initiatives: Government support has formed the backbone of India’s export-led growth over the last several years. This time with the newly-elected Congress-led coalition at the Centre, exporters have more expectation from the government in the form of greater interest subsidy on bank loans, relief in income tax and enhanced input tax credit at the upcoming budget. The new Finance Minister Pranab Mukherjee has already said that the government is considering more relief measure for sectors like, leather, textiles and gems and jewellery.
The government announced several stimulus measures since October, 2008 to strengthen the export sector and extended an "interest-subvention" scheme from March to September 2009. Under the scheme it pays 2 per cent of the interest on export credit given by banks to exporters in employment-intensive sectors.
To beat the ongoing recession and step up investments in SEZs, the Government has already firmed up plans to bring changes in Section 10AA of the Income Tax Act in the forthcoming Union Budget. After the proposed changes and rectification, exporters will be able to avail full income tax benefits on export profits from their SEZ units. This will act as a positive incentive for companies, especially for those in IT/ITeS sector as they account for a majority of the total SEZ projects.
Many experts conclude that given their inherent strength and ability to bounce back, Indian exporters may not need a big bang stimulus package. Commerce Secretary GK Pillai notes “What we really need is ‘trust the exporter attitude towards trade’. If that can be brought in as part of the new 2009-2014 Foreign Trade Policy, then that would be of great help to the exporter”.
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