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OPINION: No light at the end of the tunnel for engineering exports

Engineering sector is one of the biggest employment generator in India

Steel-industrial-smelter-furnance-reuters Representational image | Reuters

Engineering exporters are going through one of the most turbulent and trying times. Of India’s total merchandise export of $320 billion, engineering sector contributes more than 25 per cent and is one of the biggest employment generator in country. Engineering exporters have to compete with China, Vietnam, Taiwan, Malaysia, and these countries have best of infrastructure, fast and cost-efficient ports, competitive inland transportation cost, and substantial cash subsidies from government. Unfortunately, in spite of being such an important sector, engineering exporters are now on the verge of losing sizeable portion of their business to other countries which will lead to large scale layoffs and permanent closure of factories.

Listed below are the urgent steps to be taken to save the engineering sector:

1. Steep increase in steel prices

The biggest threat exporters are facing is the unprecedented continuous increase in steel prices. In July 2020, the price for Cold Rolled Coil was in the range of Rs 43,000 to Rs 44,000, which have gone up to the excess of Rs 65,000 per MT, which is an increase of almost 50 per cent. No consumer can survive such an increase and international buyers are not willing to absorb such high cost since suppliers from other countries have not increased their cost. Engineering exporters should get steel at least 20 per cent lower than the current price so that this hard built sector can be saved.

2. Abnormal increase in ocean freight rates

Another big shock came with the increase in container freight rates by 70 to 80 per cent. Freight for a 40’ container to US East Coast went up from $2,200 in June 2020 to almost $4,000 now having an increase of almost 80 per cent. Shipping lines are operating almost like a cartel and asking freight rates which are never heard of and just not affordable. If rates are not brought under control then Indian exports will come to a grinding halt.

3. Increase in cost of other inputs

The price of corrugated boxes have gone up by almost 25 per cent since July 2020. This kind of increase in such a short span of time is totally prohibitive and needs to be rolled back.

4. Non-issuance of MEIS Entitlement Certificate for 2020-21

Exporters have not been able to apply for MEIS Licenses for exports done from 1.04.2020 till 31.12.2020. The delay in issuance of these license have caused huge cash flow problems specially to MSME exporters since they had factored the amount at time of quoting. Government should immediately issue MEIS to give much needed relief.

5. New Remission of Duties and Taxes on Export Scheme (RoDTEP) announced from January 2021

The Government announced new RoDTEP Scheme for exporters from January 2021, but till date no rates have been announced and exporters have no visibility hampering their competitiveness in the market. Government should immediately announce the rates for RoDTEP Scheme with increased allocation so that exporters can garner bigger share in the market.

The current onslaught of unprecedented increase in all cost parameters if not controlled, will completely derail the engineering sector. Large number of units have already started refusing orders and are on the verge of shutting down, causing mass scale unemployment, if some urgent relief measures are not announced. Government should think about saving the biggest contributor to India’s merchandise export basket and announce immediate relief measure.

Patient is on death Bed. Mere mild oxygen will not work.

Sanjay Budhia is MD, Patton International Limited

The opinions expressed in this article are those of the author's and do not purport to reflect the opinions or views of THE WEEK


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