By Prerna Mishra: There are immense growth opportunities for SMEs and new entrepreneurs in the field of exports as Central government is aiming to achieve short term goal of US $500 billion of exports by 2013-14 and doubling country's share in world trade by 2020, shares Ajay Sahai, the Director General & CEO of Federation of Indian Export Organisations (FIEO) in an exclusive interview with SME News.
What is your opinion on the state of exports in the country? How is the current global market scenario for exports by SMEs?
Ajay Sahai: Exports have done reasonably well during the last decade showing a CARG of about 20%. We have already clocked over US$ 300 billion in the last fiscal. However, the last six months of the previous fiscal showed only 10% growth. The exports witnessed negative growth in April, 2012 and a very moderate growth in May, 2012. The slowdown in exports is on account of global slowdown, crisis in Eurozone and deceleration in domestic manufacturing. SMEs will also be impacted because of these developments.
What is the role that your organisation aims to play to uplift the SME sector?
Ajay Sahai: FIEO provides capacity building to the SME sector and addresses various concerns of the sector relating to finance, marketing and logistics. FIEO has already represented to RBI that 50% of the total export credit should be earmarked for SME sector. Our efforts have resulted in grant of 2% interest subvention for all SMEs in exports. We provide international exposure through participation in trade fairs and exhibitions all over the globe. FIEO Warehouse at Sharjah provides logistic support by giving them Warehousing and displaying facility not only for Middle East but to rest of the world.
What are the growth opportunities for the SMEs available in the export sector?
Ajay Sahai: Indian exports are witnessing rapid change both in terms of products and markets. The traditional sectors of exports are losing to new sectors such as engineering, pharmaceuticals, electronics, etc. which are dominated by SME segment. The traditional exports like gems & jewellery, apparel, handicrafts, marine, agro processing, etc. are heavily dominated by SME segment. Government is also providing support to traditional sectors of exports in view of their positive role in creation of employment. Exports are gradually moving from advance economies to developing and emerging economies. The share of Africa, Latin America and Asia has increased substantially in last one decade at the cost of Europe and North America. SMEs can take advantage of emerging situation.
Indian SMEs are often faced with a challenge of non availability of funds. What's your opinion on this?
Ajay Sahai: Lack of availability of credit and cost of credit are the biggest challenge for SME sector. Despite RBI guideline on collaterals, banks are little reluctant to provide collateral free loans even upto Rs 10 lakhs. The share of export credit in total banking credit is on decline and has touched to less than 4% in December, 2011 as against the stipulated target of 12% fixed by RBI. The cost of credit is also very high particularly after deregulation of export credit and switch over to the base rate. Indian exporters are getting credit at 12-13% while their competitor in South East Asia get the same at less than 6%. The high rate of credit is making SMEs uncompetitive.
Are SMEs fully aware about the advantages of the EXIM business? What measures your organisation undertakes to make them aware?
Ajay Sahai: Lack of information is one of the biggest drawback for SMEs. FIEO organizes workshops, seminars and interactive sessions to rope SMEs in our export effort. Government of India is looking at short term goal of US$ 500 billion of exports by 2013-14 and doubling our share in world trade by 2020. These figures would require new entrepreneurs to enter the field of exports. We have tied up with leading management institutes to attract entrepreneurs through our short term courses in international trade so that various facets of exports and imports may be explained to them.
In its mid-term monetary policy review, RBI announced to enhance the export credit refinance (ECR) limit to 50 per cent for scheduled banks (excluding RRBs). How will the step be beneficiary to the export sector?
Ajay Sahai: RBI has announced increase in the refinance facility from 15% to 50% with a view to increase flow of credit. The RBI refinance is available at 8% which is much less than the cost of deposit of fund by any bank. This has resulted in reduction of export credit rate by SBI by 0.50% but we expect other banks to follow the suit with steeper reduction in export credit rate.
The sharp and continuous fall of rupee is hitting the interest of the exporters especially from MSME sectors. What according to you should be the steps that the government should take to overcome this problem?
Ajay Sahai: The volatility in exchange rate is primarily due to mismatch between demand and supply and therefore, we need to address our concern at both front. For augmenting the supply, the government needs to bring required legislation to open FDI in insurance, banking, civil aviation and multi-brand retail. The concern of FIIs on tax front need to be addressed so that there is regular flow of dollar through FIIs route. For addressing the demand, we need to reduce our gold and silver imports which are going into unproductive assets. The domestic industry need to be given level playing field so as to discourage avoidable imports. The trade deficit needs to be curtailed and luckily the softening of crude prices and lesser imports of gold and silver in April and May, 2012 are good sign for the country.
The government recently announced the Foreign Trade Policy which includes a seven-point strategy to boost labour intensive export sector. According to you, how it can prove to be useful for exporters?
Ajay Sahai: Looking at fiscal situation, not many concessions were expected. However, the Government has done a good job to provide Interest Subvention on exports and promote exports through non-fiscal initiatives. The extension of Zero Duty EPCG Scheme would help in expansion and modernization of industry whereas encouragement given to domestic sourcing under various authorization will give a boost to manufacturing sector in the country. The Government has initiated various measures to reduce the transaction cost of exports, which as per their own estimate varies between 8-10% of FOB value of exports.
From past couple of months, some key industrial sectors dominated by small and medium enterprises (SMEs) like gems and jewellery, readymade garments, leather, electronics, plastics, etc, have been registering sluggish growth. How do you observe the scenario now?
Ajay Sahai: These sectors have shown sluggish growth as they are heavily dependent on advance economies particularly sectors such as gems & jewellery, garments, and leather. However, of late, we have seen that these sectors are also moving to new markets in Latin America, Africa and CIS countries, which will help in registering the slowdown. We also hope that situation in Europe will improve in the second half of the current fiscal, helping exports of these sectors.
Please share your roadmap for the current fiscal (2012-13).
Ajay Sahai: We expect exports to grow by 10% in first six months of the current fiscal and by 30% in the next six months. With these projections, we expect the exports to grow to US$ 360 billion by 2012-13. Imports may see a slowdown with reduction in crude prices and lesser import of Gold and Silver. We expect imports to be around US$ 510 billion with a manageable deficit of about US$ 150 billion in 2012-13.
What is the outlook for the sector, especially SMEs, in the next 6 months?
Ajay Sahai: The next six months are challenging as confusing and contradicting news may flow from Euro Zone. The bailout package given to Greece and Spain can add to positive climate but at the same time, if not accompanied by austerity measures, may lead to discouraging signs. SMEs should use the opportunity of favourable exchange rate to add to their competitiveness but at the same time, they should explore the possibility of adding to their long term competitiveness by increasing productivity, adopting IT in various operations and curtailing the avoidable expenditure.