The coronavirus outbreak has threatened a nascent recovery in India's exports, which had risen almost 3% year-on-year in February after a sixth straight month of fall and now stare at a contraction in FY21.
The coronavirus outbreak has threatened a nascent recovery in India’s exports, which had risen almost 3% year-on-year in February after a sixth straight month of fall and now stare at a contraction in FY21. Exporters say although the current rupee depreciation can potentially help exports, given the subdued economic activity worldwide, external headwinds will far outweigh this gain.
The exporters that FE spoke to warn of a 10-15% drop in merchandise exports in FY21 if the situation persists until the first half of the next fiscal. Global supply chain has been hit hard, cargo movement has been affected, shipping lines altered and warehouse capacity stretched, they say. As such, exports up to February have dropped 1.5% y-o-y to $293 billion and may fall just short of the FY19 level of $330 billion this fiscal.
The full damaging impact of the epidemic will start to show up as early as March, the exporters caution, as they seek immediate government support -including relief from re-export obligation and NPA classification of stressed accounts, easier credit flow and swift release of all benefits – to tide over the crisis. This has complicated the task for policy-makers, as they prepare the next foreign trade policy, to be effective from April.
As many as 58% of the 103 respondents in a survey by CARE Ratings suggest exports will contract in FY21 following the Covid-19 outbreak, with sectors such as tourism, aviation, auto, electronics and metals facing the maximum risk. The Federation of Indian Export Organisations (FIEO) has projected a $5-billion loss in earnings from foreign tourist arrivals in 2020 following travel bans imposed by India and others. It also warns of a slowdown in IT exports, with more cases surfacing in key markets such as Europe and the US.
The EU, the US and China alone made up for 40% of the country’s merchandise exports in the April-January period of this fiscal.
With key markets witnessing a heightened impact of the pandemic, engineering exporters’ body EEPC is worried about the eroding ability of its members, especially MSMEs, to ship out. Engineering goods are the largest segment, making up for over a quarter of the country’s export basket.
EEPC chairman Ravi Sehgal said: “Trade is crippled in most of these destinations due to a near collapse of global supply chain, even as the cargo movement has stopped. The warehousing capacity is over-stretched with severe blocking of export finance. The international shipping lines are affected. Even the urgent and less bulky cargo through air routes are paralysed with the airlines trimming their operations.”
ICRA on Monday warned of a drop of 100-150 basis points in the operating profits of exporters in the labour-intensive apparel sector this fiscal. However, FIEO and some other export bodies say it’s too early to firm up a precise estimate of the potential losses, although they flagged potential risks.
In its meeting with the commerce ministry, FIEO has suggested seven measures. It has urged the government to extend by one year the export obligation period under key schemes – the Advance Authorization and the Export Promotion of Capital Goods. Similarly, it wants automatic revalidation of all duty-free authorisations for one year to enable industry to import inputs at the right price with greater ease. It also says the RBI should extend the remittance period from nine months to 15 months, looking into the liquidity challenges and slow consumer spending.
Banks, FIEO says, must be asked to delay declaring companies’ accounts as non-performing assets (NPAs) for one year as the lack of business coupled with fixed cost will turn many accounts into NPAs.
“Given the limited resources, we have requested the government to quickly take these steps, which don’t involve any fiscal incentive and will still help exporters,” FIEO director general Ajay Sahai told FE.
Lack of adequate credit flow to exporters remains a sticky issue. Export credit contracted almost 23% y-o-y as of January 31, even though overall priority-sector lending rose 4%.
Meanwhile, both the World Trade Organization and the IMF have said global goods growth will remain weak in 2020, mirroring the broader slide in economic growth. The WTO last month said its goods trade indicator dropped to 95.5 from 96.6 reading reported in November 2019. A reading of less than 100 suggests trade growth below medium-term trends.