Exporters alarmed as export sees double-digit drop

Exporters, who were banking on the foreign trade policy (FTP) announced this year, have started becoming jittery as merchandise goods' exports have fallen around 15 per cent in July.

The exporters, who were hailing the FTP, now want the government to do more as they believe what was announced in June is not enough.

They are now demanding that focus market scheme (FMS) -- which offset high freight cost and other externalities -- be expanded to traditional markets such as the US and Europe, and, the creation of a fund to help micro, small and medium exporters to gain access to unexplored markets.

Since the beginning of the financial year, exports have fallen for three consecutive months since May. However, the fall recorded in July was a steep 14.8 per cent -- to $22.4 billion compared with $26.3 billion recorded in the same month last year. Imports dipped by 7.78 per cent to $37.9 billion against $41.1 billion, according to the provisional data released by the Ministry of Commerce and Industry.

The fall in July has been the sharpest since 35 months after exports contracted 23.59 per cent in August 2009. Exports also registered a fall of 4.16 per cent and 5.45 per cent in May and June respectively. Cumulatively, exports contracted 1.70 per cent in the first four months of this financial year.

"We need the right kind of intervention this time," said Sanjay Budhia, managing director and chairman, Patton Group, a Kolkata-based export house. "A double-digit drop in exports is a major cause of concern. It is not that our traditional markets have vanished, they are very much there."

He said the problem was India's exports are not priced competitively, unlike China's, which is offering products at "throwaway" prices owing to an all-time low demand in the domestic market.

Budhia, who is also the chairman of CII's National Committee on Exports and Imports, wants the government to bring India's traditional markets of US and Europe under FMS, that would provide them incentives

in marketing and selling their products aggressively. The sectors that witnessed the fall this time were some top-ranking ones, including engineering, and gems and jewellery.

Engineering goods had given a stellar performance in the last couple of financial years. In 2011-12, engineering exports reached $60 billion from $49.89 billion in 2010-11 and $33.73 billion in 2009-10. But engineering goods' exporters today doubt whether the gain can be sustained this financial year.

According to R Maitra, executive director of the Engineering Export Promotion Council (EEPC), the challenge this year would be to sustain the same level of growth. Engineering exports have fallen nine per cent during April-July.

"We cannot survive until and unless we get back our traditional markets of the US and Europe. Diversifying to newer markets is alright but these cannot match up to the European standards," Maitra said.

He also added that EEPC is now looking at East European countries -- Poland, Czech Republic and Romania. Even though these countries had been heavily dependent on Germany and Italy, Maitra said, demand from India is increasing due to cheaper price offered by India, unlike Germany and Italy where there had been a huge price escalation.

The Federation of Indian Export Organisations (FIEO) has demanded for the establishment of an Export Development Fund with a corpus of 0.5 per cent of freight on board value to enable micro, small and medium enterprises exporters to aggressively enter the unexplored markets.

The exporters' body also said with government's intervention in lowering the cost of credit, exports can see a turnaround by October. But, it said even after two per cent interest subvention, cost of credit is too high in domestic markets.

Currently, big exporters can raise money outside India at six per cent. But in India the rate of interest even after subvention comes at around nine per cent, Ajay Sahai of Fieo said.

FTP for this year had extended interest subvention till this financial year-end, and expanded it to readymade garments and toys.