NEW DELHI: The escalating
geopolitical tension
may have implications for the country’s
exports
in the first quarter of 2024-25 as it is likely to impact global
demand
, apex exporters body
Fieo
said.
The
global uncertainties
caused by the continuing war between Russia and Ukraine have impacted India’s outbound shipments in 2023-24, which recorded a decline of 3.1% to $437 billion.
Imports too dipped by over 8% to $677.2 billion.
“If the global situation continues to be like this, it will impact global demand. In the first quarter numbers, the demand slowdown may be visible,” Fieo director general Ajay Sahai said.
He added that despite all the challenges, freight rates are softening and it is giving an indication that demand may be impacted in the times to come.
He cautioned that further escalation of the current situation could have serious implications on world trade.
“Besides geopolitical uncertainties, high inflation and high interest rates are also crucial reasons for demand slowdown,” he said, adding certain advanced economies like Europe may witness more slowdown.
He also said that India’s domestic currency depreciated only about 1.3 per cent during 2023-24 as against Chinese Yuan’s 4.8 per cent; Thai Baht 6.3 per cent and Malaysian Ringgit’s 7 per cent.
When asked about the impact of the Israel-Iran war, he said certain exporters from the engineering sector have stated that the demand for goods that are going to the UAE and then to Iran has come down.
Jewellery demand may also come down, he said.
The director general suggested the government take certain steps for exporters on the liquidity front.
“Due to demand slowdown, offtake of goods will be low so foreign buyers will also take a longer period to make payments. So we require funds for a longer period. Exporters also need interest subvention support,” Sahai said.
He asked for continuation of interest equalisation scheme.
On December 8, 2023, the Union Cabinet approved an additional allocation of Rs 2,500 crore for the continuation of the scheme up to June 30.
The scheme helps exporters from identified sectors and all MSME manufacturer exporters to avail of rupee export credit at competitive rates at a time when the global economy is facing headwinds. Exporters get subsidies under the ‘Interest Equalisation Scheme for pre- and post-shipment rupee export credit.
“The rates should be enhanced to 3 per cent and 5 per cent,” he said.
He added that technology and knowledge-based sectors like electronics, electricals, telecommunication, machinery, auto, pharma, medicine and diagnostics would help achieve USD 1 trillion exports by 2030.
“But we have a problem in labour intensive sectors like apparel, footwear, and gems and jewellery as our market share is going down,’ he said.
Meanwhile in a statement, FIEO president Ashwani Kumar said that interest equalization scheme (IES) is one of the most effective instruments to remove cost disability of Indian exports.
The scheme provides much-needed competitiveness to exports, he said adding the interest costs in India are much above that of its competitors’ countries.
“The bank rate in India is 6.5 per cent whereas the bank rate in many of our Asian economies is around 3.5 per cent. With a higher spread, the credit cost in India is generally over 5-6 per cent as compared to such countries,” Kumar said.
Kumar said that the relevance of the Interest Equalisation Scheme is much more today as buyers are asking for longer periods of credit, with a slowdown in demand and offtake from the shelves, whereas exporters are also looking for larger credit due to a huge hike in Sea and air freight.
“The interest subvention rates may also be enhanced from 3 per cent to 5 per cent for manufacturers MSMEs and from 2 per cent to 3 per cent for 410 tariff lines respectively as when the subvention was reduced, the repo rate was 4.4 per cent which has gone up and currently is 6.5 per cent,” he said.