Companies can save through combined procurement: T C A Ranganathan
With outbound trade from India registering a decline for the sixth consecutive month, the government is carrying out reviews across sectors to help exporters. Export-Import Bank of India (Exim Bank) Chairman and Managing Director T C A Ranganathan, in an interview with Sharmistha Mukherjee, says while any programme initiated on a short-term basis would be reactive, there is a need for cohesive policy action to promote exports across categories and consolidate India’s foothold on the global trade map. Edited excerpts:
Recently, the Directorate General of Foreign Trade concluded a sectoral review to consider incentives for exporters. Are such measures adequate, given the current macroeconomic conditions?
Any focus on short-term and mid-term measures to revive exports would be mostly reactive. Importantly, there is a need to explore long-term programmes. The structure of Indian exports needs consideration and modification. India focuses on the export of low-tech products because of a lot of misleading signals on the policy front. While high-tech products account for seven per cent of our exports, they have a share of 25 per cent in global trade. Manufacturing mid- and high-tech products is capital intensive, but we need to, and have to, expand exports under all three categories to meet our trade target of $500 billion by 2014.
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What kind of policy action do exporters need to boost outbound trade?
Most large export nations have an equitable mix of low-tech, mid-tech and high-tech products in exports; this is not the case in India. At the low end, competition is intense and pricing becomes a crucial factor in expanding exports. At the higher end, innovation and research & development projects are not getting the required policy support from the government. There should be a separate definition for micro, small and medium enterprises (MSMEs) that manufacture capital-intensive electronic products and aerospace and defence components. In the US and Europe, the investment cap on such units is $50-60 million. In India, the ceiling is $20-30 million. The investment ceiling for these MSMEs needs to be raised from Rs 10 crore to levels prevalent in other countries. Every year, as many as 4,00,000 engineers graduate from colleges in India. These entrepreneurs should be encouraged to invest in developing high-tech aerospace and defence components. A single size won’t fit all.
Any change in policy may take time to be executed. In the meantime, what can exporters do to expand business?
In the short term, we are being impacted by what is happening outside. Demand is shrinking in the US and Europe. Even if demand contracts 1-1.5 per cent, the capacity created after factoring in growth rates of five to six per cent becomes idle; price competition becomes intense. If the challenge on the macroeconomic front has to be met, companies have to carry out cost-cutting. You cannot do much about labour costs and other fixed expenses. But companies can save on raw material costs through combined procurement. The Chinese, Koreans and Vietnamese practice clustering. Companies can compete on products and on quality but can carry out procurement together. What has to seep into the Indian psyche is one company is not pitted against another. While exporting from India, the competition is between one centre of production and another.
There is concern in the industry about the high cost of capital in the country. Is that affecting growth in trade?
Most companies make investment decisions on expected costs over a period in which a project is likely to be completed. When investor confidence is high, even at higher interest rates, companies go ahead with projects. This is because they believe costs on capital would fall. But when investor confidence is low, companies hold on to resources. With the finance minister announcing some reforms, now, the sentiment is likely to improve. But administrative corrections relating to faster clearances are necessary to catalyse investment decisions.
Is the $500-billion export target for 2013-14 realistic? Recently, the World Trade Organisation had scaled down its estimate for growth in global commerce this year, as well as its estimate for 2013.
Petroleum products, our largest exports category, account for 17 per cent of our overall outbound trade. But current figures do not capture the growth in the sector in a uniform manner. Exports of gems and jewellery and pharmaceutical products are also doing well, and it is expected these would continue to do well in the near future. For chemicals too, the compounded annual growth rate in exports is good, though our imports are higher. Domestic production has been held up artificially, as companies are not being given licences to set up even brownfield units. In agricultural commodities, we export guar gum and niche plantation products. The government is considering permitting exports of other agricultural products, too. Once that happens, this segment would grow well. The fortunes of textile exporters have improved through the last year because of the rupee depreciation. Yarn exports are also growing. However, there is stress — our exports have fallen, but not as much as China’s. In fact, if mining is excluded, Indian exports have not fared too badly. Sectoral data has to be reviewed before we reach any conclusion.
How does Exim Bank plan to promote exports?
We have commenced programmes to boost project exports from India and are extending sovereign lines of credit to various countries to buy project goods exported from the country. We are also providing finance to foreign companies buying products exported from India. We give complete buyer credit to well-know firms and offer supplier credit to lesser known ones. For Indian companies that set up shop outside the country, we offer finance to source materials from India.