During April-November 2020-21, India’s exports dropped 17.76% to $173.66 billion, while imports fell 33.55% to $215.69 billion, according to official estimates. A recent set of official data also showed India’s trade deficit touching a 10-month high of $9.87 billion in November.
Now, as businesses prepare to bid goodbye to the year, the pertinent question is what 2021 looks like for the country’s exporting fraternity?
For a majority of stakeholders that ET Digital reach out to, the worst of the turbulent phase is now a thing of the past, and things are looking up here on.
“2021 is a year of hope and optimism for the exporting community, as we all expect that the worst effect of COVID-19 will vanish from the globe. We are confident that a V-shape recovery will be witnessed in world trade and we will gain much more than what we lost in 2020. Fortunately for us, the decline in exports in the 3rd and 4th quarter of 2020 has been largely addressed with a few months of positive exports. Since the first and second quarter have been pretty bad, we may end the financial year 2020-21 with exports around $290 billion,” says Ajay Sahai, Director General & CEO, FIEO.
Sahai is optimistic that looking into the extremely good order booking position for food including processed, pharma, medical and diagnostic products, technical textiles, chemical, plastics, electronics and networking products, exporters should attempt to take exports to $350 billion. This, according to him, looks, “Ambitious but definitely achievable, if exporters can address supply side challenges.”
Asked if he believes the business optimism that the exporting sector had pre-Covid is back, Sahai maintains that the recent economic and trade indicators definitely point to the same. However, he adds that the moot issue is whether these are reflections of pent up demand, following the lockdown, or a sustained trend.
India’s one key foreign exchange earner sector is its textile and apparel industry.
With the more infectious Coronavirus strain (and its many variants now) being reported in many parts of the world and the subsequent re-imposition of lockdowns in many markets, the exporting sector is once again forced to adopt a cautious approach before firing on all cylinders.
“We are also not confident whether we are through the second or third waves in the cities. We have to wait for some more months to reach a definite conclusion. The litmus test will be the sale trends for Christmas and New Year. If sales pick up, we will liquidate inventories, pushing further demand and order, thus pushing both exports and domestic economic activities,” underlines Sahai.
India’s one key foreign exchange earner sector is its textile and apparel industry. The country, being the largest producer of jute, the second largest producer of cotton, silk and cellulosic fibre, the third largest producer of raw cotton and the fourth largest producer of synthetic fibre, is today recognized as one of the best sourcing destinations for apparels. Apparel Export Promotion Council (AEPC) Chairman A Sakthivel is of the view that the pandemic has unleashed many never-before opportunities to the textile exporting fraternity. With green shoots of recovery clearly in sight, Sakthivel sees India to emerge as a hub for medical textiles, technical textiles, and manmade fibre (MMF) based garments.
“For the last three months, we have been seeing a positive sentiment towards India. There has been an increase in exports compared to last year. This corona crisis turned out to be an opportunity as we grew our production of medical textiles, technical textiles, and also MMF based garments. India became the second largest manufacturer of Personal Protective Equipment (PPE) in the world in a matter of months since March early this year. The Council is working on the expansion of MMF products in India’s apparel export basket,” Sakthivel says.
The $120 billion worth Indian electronic markets is another key foreign exchange earner for the country.
Echoing AEPC’s assertion, Rajendra Agrawal, Managing Director, Donear Industries, Ltd is betting big on the untapped potential of the MMF segment. “The demand for essential products – especially MMF – is on the rise. We could base this on consumer mindsets still opting for basics and low ticket prices compared to niche, higher end ones. Overall, 2021 promises to be an encouraging year for the textile fraternity with it resuming normalcy,” he says.
However, despite optimism, the sector is falling behind competitors, including Bangladesh, Cambodia and Pakistan because of duty disadvantage (e.g. 9.6% in the UK- bound exports), Sakthivel presses for a duty parity to double India’s apparel exports to markets such as the UK in the next two years. He pitches for a priority discussion on FTA during UK PM Boris Johnson’s upcoming visit to New Delhi. Early negotiation of the FTA or the Comprehensive Economic Partnership Agreement (CEPA) will help in generating employment in and increasing exports from the MSME sector, Sakthivel adds.
ICT and auto push
The $120 billion worth Indian electronic markets is another key foreign exchange earner for the country. According to Sandeep Narula, Chairman, Electronics and Computer Software Export Promotion Council (ESC), Worldwide ICT segment is mostly insulated from the onslaught of COVID-19 since many people have switched over to digital medium. In his view, the Indian electronics export has been on an upward curve for the last couple of years. “The figures for this fiscal will be out soon. My gut feeling is that there may not be any significant drop this year since in the last quarter of the current fiscal, exports can pick up since electronic units are working to the near normal. In the software sector, some large Indian IT outsourcing companies have got good contracts and they could execute the contracts in hand well in time because of the new normal of work from home,” Narula says.
He adds the government has come out with several schemes to give a critical push to the ICT sector, particularly the electronics hardware, which are now perceived as a fast-growing segment not only for cutting down the heavy imports but also for generating exportable surplus.
On the same lines, the country’s auto and its components manufacturing sector is “cautiously optimistic” about near to mid-term future prospects. According to Automotive Component Manufacturers Association of India (ACMA) although the sector is still not out of the woods, that for the first time, the industry witnessed a trade surplus with auto component exports at $5.2 billion and imports at $5 billion gives some clues to what’s coming over the horizon.
On the industry’s outlook for the near to mid-term future, Deepak Jain, President, ACMA, says, “Despite concerns of another wave of the pandemic, the industry is cautiously optimistic about the prospects of the Indian economy and the automotive sector for FY 2021-22. Companies have mostly recovered and are back to moderate financial health, post the lockdown. Financially healthy and growth focused companies are also actively focusing on CAPEX and acquisition/merger opportunities.”
The auto sector could gain from the tailwinds of green shoots now visible, provided it’s offered the right set of policy interventions, the industry believes. To boost the sector’s exports share, ACMA’s key recommendations to the government include — an early implementation of Remission of Duties or Taxes on Export Products (RoDTEP) scheme. Worth mentioning is the new scheme, a WTO-compliant one, is to replace the existing MEIS scheme for exporters. The industry body also bats for ease in Customs Administration of Rules of Origin under Trade Agreements Rules, 2020, Release of funds against MEIS scrips for FY 2019-20 and 9 months of the FY 2020-21, i.e. from 1.4.2020 to 31.12.2020, and continuation of Export Promotion Capital Goods Scheme in the new Foreign Trade Policy 2021-2026.