Indian Exports Jaded Show
The resilience of the Indian economy given its ability to largely insulate itself from the curse of the recession that plagued the world is now a fabled story. But what is perhaps not known in this rather optimistic scenario is the rather lacklustre export performance of the country. Having missed the 160 billion target the export economy has a rather uncertain future even as the global business scene shows some signs of recovery. This is what the latest export outlook survey conducted by premier chamber, the Federation of Indian Chambers of Commerce and Industry (FICCI) has to conclude.
Even as the recovery in the global economy peps up export conditions, there is a touch of worry on the export front here. FICCI’s latest export survey reveals that rupee appreciation and aggressive Chinese moves to push exports could weaken India’s export prospects. A chamber release quoting Mr Harsh Pati Singhania, President, FICCI said, “The scenario is such that exporters are expecting support from the Indian government as the Chinese are getting massive support for their export growth. Equally, with the global recovery in its initial stages, the Government should watch the export performance in 2010 before taking a call on stimulus measures for exporters.”
The FICCI export survey notes that the recent export performance should be evaluated keeping in mind that this came on the back of low or negative growth in the same period of previous year. The fiscal support extended by the government provided some cushion to the exporters, it states. The survey was conducted during the months of January and February 2010. It monitors the trends, direction and structure of India’s exports by gathering direct ground level feedback from India’s leading exporters. The survey also monitors the present and expected performance of the Indian exporters.
The survey saw participation from 264 companies with a wide geographical and sectoral spread. The turnover of the companies that participated in the survey ranged from Rs 60 lakh to Rs 5500 crore and the companies represented sectors like automotive, food and food processing, FMCG, textiles, handicrafts, metal and metal products, heavy engineering, leather, marine products, pharmaceuticals and chemicals, wood and wood products and mining.
In FICCI’s latest Export Survey, the participating companies have reported that the global market is showing signs of improvement and there is an evident pickup in demand abroad. Export conditions have improved and there is a feeling that the recent performance, with exports growth entering positive territory since November 2009, is likely to continue in the near term.
Data made available by the Commerce Ministry confirms the likely trend in export growth, which FICCI had talked about in its last export survey. Monthly figures on merchandise export performance show that after clocking negative growth for thirteen straight months beginning October 2008, export growth entered positive territory in November 2009. And this positive growth performance has been maintained in the subsequent months of December 2009 and January 2010.
This turnaround in export performance has encouraged members of the Indian exporting community and they are sensing signs of a further improvement in the months to come. And this ray of optimism about likely export performance is also getting reflected in the responses received by FICCI.
The outlook for export prices is more conservative in comparison to the outlook for export volumes. In the current survey 62 per cent of the companies have reported that the prices of their goods will either remain the same or will decline over the next six months. This clearly indicates the pricing pressure faced by the companies. Despite rising
input costs, the companies are facing stiff resistance on the issue of price revisions in-lieu of the intense competition prevailing in the international markets.
The firms that participated in the latest round of FICCI’s Export Survey have said that, “the improvement seen in the export performance of the country is due to the recovery seen in some of our major export destinations”. Market enquiries have resumed and buyers are coming forward and placing new orders. However, the pace of new business is still low as compared to the pace seen during the pre crisis level. Finally, exporters have also indicated that the stimulus measures provided them with reasonable cushion and support to compete with the exporters from other countries particularly in the Asian region.
However, at the same time there is a clear apprehension that given the appreciation of the Rupee and the continuous efforts being made by the Chinese to encourage their exports, Indian exporters may again run into a rough patch.
The proportion of respondents indicating improved conditions for exports in the economy, industry and firm level has gone up in our latest survey. There is also an increase in the proportion of respondents who expect export conditions would further improve in the coming six months.
This positive assessment however comes with a caveat. Exporters have said that while market enquiries have resumed and buyers are coming forward and placing new orders, the pace of new business is still low as compared to the pace seen during the pre crisis level.
Respondent have pointed out that while evaluating the robustness of the recent performance, one must keep in mind that this came on the back of low / negative growth in the corresponding months of the previous year.
Exporters have also indicated that the stimulus measures provided them with reasonable cushion and support to compete with the exporters from other countries particularly in the Asian region.
Given this assessment, exporters want the government to watch the export performance for the calendar year 2010 and then take a call on stimulus measures for exporters. Majority of the respondents from the exporting community (80 per cent) have said that this is not the right time to withdraw the export stimulus and any premature move may weaken their standing in the highly competitive international market.
With the commodity prices worldwide again seeing an upward trend, the rising cost of both indigenous as well as imported raw materials is pushing up the cost of production for manufacturers. This in turn leads to lower margins for the exporting companies since they have to face a cut-throat competition in the international markets in terms of pricing of their products.
Further, with the rupee appreciating against the US dollar, the situation is unfavourable for the Indian exporters since orders are booked six months or more in advance and it is difficult for the exporters to take account of such large variations in the value of the rupee and this in turn leads to lower profit realisations for the exporting company.
The intense competition faced by the Indian exporters in the international market is another area of growing concern. Exporters are saying that China, which was a strong competitor even earlier, has now gained further strength with the Chinese government extending full support to them during the recessionary period. The export companies feel that it is very hard to compete with the Chinese products especially in terms of price in the present situation.
Given the significant increase in input prices, appreciation of the rupee against the US$ and continuous aggressive moves by the Chinese exporters who are completely supported by their government, it is important that the government takes a balanced view on the issue of support extended to exporters, survey argued.
Exporters are expecting that in the Union Budget 2010-11 government will not rollback any relief measures that were provided to support export performance during the recessionary period. Further, in the forthcoming budget government should also lay additional emphasis on building high quality infrastructure, implementation of GST and simplification of procedures for increasing competitiveness of Indian exports.
By K Anjna