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October 10, 2001
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Money > Business Headlines > Report October 10, 2001 |
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Indian exporters hit hard by terror attacksPriya Ganapati in Bombay Indian exports, caught in the slowdown that the global economy was reeling under since the beginning of the year, has been dealt a fatal blow with the recent developments in America and Afghanistan.
Quantifying the losses incurred over the last few weeks exactly is a difficult exercise, but by now it is evident that India will not be able to meet its export targets. The Federation of Indian Export Organisations, the apex body of all Indian export promotion organisations, admits that there will be a shortfall in this year's export earnings. FIEO has projected annual revenues from exports to touch $40 billion this year. It will be happy if it meets $36 billion, the figure it had achieved last year. "Indian exports have been hit on many fronts. Long-term contracts with buyers abroad are suffering. New orders are difficult to come by. Confidence is low in the sector. It is obvious that we will not be able to meet our targets," says S K Saraf, vice-president, FIEO (Western Region) and managing director of Technocraft Industries, which produced and exported products worth over Rs 400 million to about 60 countries a year ago. Preliminary data collected by the Calcutta-based Directorate General of Commercial Intelligence and Statistics also shows that India's exports in April-August fell to $17.13 billion from $17.53 billion a year ago. Trade deficit has widened to $4.6 billion from $3.68 billion over the same period. However, there's still more bad news to come. The government-promoted Export Credit Guarantee Corporation of India Limited, too, says that it will be near-impossible to meet its revenue projections. For the year 2001-2002, ECGC has set a revenue target of Rs 400 billion, as against Rs 246.16 billion that it had achieved last year. Desai says it will be a miracle if they even achieve a little more than the previous year. "We wont' be able to meet our export targets. There will be a shortfall of at least 5 to 10 per cent and depending on how many other countries get dragged into this war, the deficit will increase," says Uma Desai, Assistant General Manager (Marketing), ECGC. America is the biggest country to which Indian products are shipped out. At the ECGC, 25 per cent of the total exports go to America. Naturally, the uncertainty in the political developments there has had a big impact on Indian exports. "The US is a strong market and the developments there affect the confidence of the Indian exporters. The fluid situation compounds our problems with the result that buyers are shying away from coming to India," says Desai. Another major reason for the depression is that the cost of doing business for exporters has shot up tremendously. Insurance companies have hiked the premium by as much as 80 per cent. On Monday, after the US retaliated by bombing parts of Afghanistan, a few companies even threatened to scrap cover to any consignment passing through the Arabian seas. "They clearly cannot do any such thing. It was an irrational reaction to the attacks. We have now convinced them to not take any such measures and hike the premium if they feel so," says K K Jain, president, FIEO. Airline and shipping freight charges have doubled depending on the route adopted. The percentage hike in charges since the September attacks is estimated between 40 to 80 per cent. Shipping lines of many Gulf countries are not being allowed to touch the US ports, which means that exporters have to now find longer and circuitous routes to reach their products to American shores. "All this means that it takes more time to deliver the goods. It also means that costs for the exporters have gone up, which they have to pass on to the consumers. This may retard consumer spending on the products and lower demand for it," warns Jain. The panic in the airline industry and the fear of flying now has resulted in fewer buyers coming to Indian shores. The exports industry to a large extent still depends on personal interaction between the buyers and the sellers, wherein a rapport is built between the two and a examination of product also takes place to ensure that it meets with the highest quality benchmarks. "Indian exporters are also not travelling abroad so freely in order to scout for new opportunities since the attacks in September. This means that large number of new orders are not coming in," says Jain. The most badly hit sectors are gems and jewellery, handicrafts, garments, light engineering goods and plastics. "Non-essential items are always the first to take a beating. In garments, classic and hi-fashion wear are suffering. The exports of critical or essential goods will fairly remain stable," says Jain. At ECGC, basic chemicals and pharmaceuticals had the largest chunk of the exports pie. With a share of around 15 per cent, the sector raked in nearly Rs 50 billion in revenue. This year, even that figure will be tough to meet. "Reports have showed that internally the sector is not doing very well. There is a negative growth in it and because of this too exports might be affected," says Desai. Payments for the shipments that have already gone out are at risk now. The issue which is tricky even at the best of times assumes significant proportions today during the outbreak of war or civil war as this may block or delay payment for goods exported. ECGC, which covers export credit insurance, is watching the situation cautiously. "It is difficult to say anything at present. The attacks now are on a third country, with which we have no direct links. But if the war spreads to other countries then payments may not come through. We will have to assess the situation then and react to it. We are monitoring the situation closely and will react as soon as there are any further developments," says Desai. Meanwhile, the government has taken a few measures to bolster up the sagging confidence and revenues. On September 24, the Reserve Bank of India cut interest rates for export credit by one percentage point across the board. Sadly, the political events that followed overtook RBI's measures. The constant threat of war held out by the US and the attacks on Afghanistan have meant that the benefits of the rate cut passed unnoticed. "The RBI rate cut has not had much of an impact. The PLR varies across banks all over the country and a 1 percentage point cut does create much of a difference to us under the current situation," says Saraf. Meanwhile, senior commerce ministry officials now say that the government will announce further measures to boost the bottom line for exports. FIEO hopes that this package will concede many of the demands that it has presented to the government. "We have suggested that exports be granted tax exemption and the extra burden that exporters have to bear now be reimbursed through Marketing Development Assistance that is giving out by the government," Jain suggests. MDA is a scheme operated through the Department of Commerce that provides grants to exporters for various promotion activities abroad. Jain also wants exports to be declared a national priority now. The move will help cut through bureaucratic maze and give requests from exporters priority over all government ministries and departments. "Sadly, the government's moves to boost the sagging industry have not been too significant till now. A lot more needs to be done if we are to meet our targets for this year, which for all purposes does not seem possible now," he says. Saraf also assures that FIEO is working on confidence-building exercises to bring the buyers back into the country and assure that doing business with India right now is safe. FIEO is liaising with Indian embassies across the world and putting out a campaign to reassure buyers. "Indian embassies are working to ensure through various mediums that buyers can continue to do business safely in India. We hope to drive that message across clearly to everyone," he asserts. YOU MAY ALSO WANT TO READ:
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