‘Project exports play an important role in exports of a country'

How have project exports done during the Covid-19 period?

The pandemic situation has adversely impacted the sales book and the top line of our customers, who are mainly operating in the overseas market. This may continue for some time. Developing countries have a stretched public budget and the room for public expenditure is narrowing with increasing focus on healthcare. In addition, lockdown and travel restrictions have further aggravated the situation globally. With merchandise exports witnessing a slowdown during the past decade, project exports present a vital conduit for expansion in exports.  However, project exporters are receiving demands from across the globe – Togo, Malawi, Maldives, Uzbekistan, including Argentina. In some cases, things are fructifying, but given the travel restrictions, many of the potential opportunities are taking time to fructify.

Will the situation improve going forward in FY21?

We still have another six months to go of FY21, and we are hopeful that we will live up to our accomplishments last year, if not surpass them. 

What is the bank doing to ease the pains of exporters?

Some of the measures include increasing the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks from one year to 15 months, for disbursements made up to 31 July, 2020. Likewise, for imports made on or before 31 July, the time period for completion of remittances against normal imports into India (except in cases where amounts are withheld towards guarantee of performance) has been extended from six months to 12 months. 

With markets being awash with liquidity is Exim planning to raise more dollar bonds to refinance earlier high-priced loans?

I agree that there is ample liquidity in hand, and the bank can raise money through bilateral and swap lines. During FY20, the bank had raised foreign currency resources aggregating $1.9 billion, of which one billion was raised in January. There is, however, no hurry to raise funds. We have enough resources to repay bonds. We repaid $500 billion in August 2020. As regards the refinance window offered by the RBI, it would act like a back-up facility or an insurance cover in case of failure to raise money from the market. We may go to the overseas market for raising of long-term funding in the second half of the financial year.

What was the response to the maiden socially responsible bonds issue?

In FY20 we entered the socially responsible bond market by issuing a USD-denominated socially responsible bond for $50 million. It was aimed at tapping investors seeking more socially responsible investment options. The funds raised from the bond were allocated to infrastructure projects in the Mekong region and were exclusively placed with The Dai-ichi Life Insurance Company Limited. 

What role can Green Finance play?

Going forward, Green Financing can play a vital role in mitigating overarching climate change risks by diverting capital from the carbon-emitting sectors to the carbon-mitigating sectors. This could be instrumental in reducing India’s carbon intensity of the economy by 33 to 35 per cent by 2030, as per its Intended Nationally Determined Contributions, relative to the 2005 level. In this regard, it is important for firms to adopt a commonly accepted taxonomy of Green Finance in India to enable the tracking of green investments on a macro-level and benchmarking it with the GDP.

Do you think that Green Financing is just another fad or is it sustainable?  

The underlying idea behind Green Financing emerges from the fact that public funding alone cannot finance the necessary transformation required to address climate change. The market for green bonds has issuers from more than 50 countries, including multilateral institutions like the World Bank. During 2007-18, cumulative issuances of green bonds worldwide was recorded at $521 billion, with India ranking second among EMEs in these issuances, next to China.

Given the global situation how do you foresee the performance of Indian exporters over the next two years?

India’s merchandise exports reached $313.3 billion in FY20, growing at an AAGR of 3 per cent during FY11 and FY20. A negative year-on-year change of -5 per cent in India’s merchandise exports was registered in FY20. This was largely due to the Covid outbreak in March which saw exports decline by -34.3 per cent. During April and August, the cumulative change in India’s exports was -26.7 per cent, compared to the exports during the same time in 2019. POL exports declined by -52.6 per cent compared to non-POL exports decline of -22.7 per cent. 

Amongst the affected exports were railway locomotives, precious stones and apparel. Given the slowdown in exports caused by the Covid-19 outbreak, a V-shaped recovery, akin to the overall economy, could be expected in 2021-22. In addition, a wider market access for India’s manufactured exports could also be anticipated as countries, worldwide, look to reduce their dependence on China. In this regard, India’s exports of iron and steel, chemicals and pharmaceuticals could gain substantial mileage, given India’s competence and capacity.

Do you expect NPAs to go up during the Covid-19 period? 

The bank’s gross NPAs at Rs9,362 crore works out to 8.75 per cent of the total loans and advances as of 31 March, 2020. The bank’s NPAs (net of provisions) were at 1.77 per cent of the net loans and advances (net of provisions). The Provision Coverage Ratio as of 31 March, 2020 was 88.76 per cent. We are about to complete the half year of this financial year. We hope that NPAs remain within permissible and expected levels.

How do you expect manufacturing can be scaled up? 

In the Indian scenario, the recent performance of the manufacturing sector has been indicative of an underlying inertia. The share of manufacturing in India’s gross value added (GVA), declining to 15.1 per cent in 2019-20, as compared to 18.35 per cent in 2010-11, despite the strong and growing private consumption demand in the country.

During the period 1991-92 to 2019-20, exports from India have increased from $18 billion to $313 billion, which is an increase of over 17 times. However, the flip part of it is that during the same period, imports have also increased from $20 billion to $473 billion, which is close to 24 times. This is a clear indication of the fact that India, despite its best efforts, has become more dependent on imports than ever before. The trade deficit, as a result, has further increased by 100 times, from $1.6 billion in 1991-92 to $60.5 billion.

Will the renewed focus on manufacturing by the government help?

Given this scenario the government envisages transforming the country into one of the largest manufacturing hubs in the world. Under Atmanirbhar Bharat, industries that can be given focus include capital goods, defence, electronics, steel, auto, solar, amongst so many others. All these sectors suffer from a huge amount of trade deficit with China alone. The supply shock created by a Chinese shutdown has prompted global firms to look for new manufacturing centres as a part of a risk hedging strategy for the future. This presents a moment of opportunity for India which can reap rich dividends by creating a manufacturing-friendly environment. If India learns from the Chinese experience and creates a favourable ecosystem with a cluster of buyers, sellers, technology and skilled labour, it can become the next global manufacturing hub.

Is there a need to build different skill-sets to meet the new jobs?

To become the most preferred manufacturing hub, India needs a ready pool of skilled human resources in the field. With greater automation becoming the norm in every sector, the nature of jobs has also changed. The emergence of IT-enabled technology in every sector has created a demand for specialist workers such as 3D printing specialists, automobile analytics engineers, apparel data analysts, E-textiles specialists, etc. India must boost the skill of its workforce with an eye on these futuristic needs.

What is the outlook on exports for products and services?

With respect to merchandise exports, it may be noted that exports, after setbacks in the first few months of this financial year due to Covid-19, are recovering fast, as the unlock process gains and economic activity makes a revival. India’s exports are recovering, but they are doing so on a low base, and some of the issues on how to become more competitive globally remain.

The Indian services trade has not been as impacted as merchandise trade and may see a quicker recovery. During April-July 2020, India’s services exports were recorded at $67.3 billion, as per RBI, a fall of 9.7 per cent over the corresponding period of the previous year. During the same period, imports fell at a higher rate of 19.2 per cent. India continues to enjoy a trade surplus in services, with the surplus being recorded at $28.1 billion during April-July 2020, over $26.1 billion during April-July 2019.  

What can be done to build export competitiveness?

To build export competitiveness, India will have to be included in the global value chain. Additionally, India needs to compete with preferred destinations of electronic goods manufacturing to be able to attract FDI to high-end product segments. There is also a need for India to regain its market share in active pharmaceutical ingredients (APIs) by developing cost-effective measures. India will also have to regain momentum in labour-intensive sectors such as readymade garments and gems & jewellery through labour reforms to achieve economy of scale.

How can India benefit from the global re-alignment? 

The pandemic has transformed the international environment for global value chains, with implications for the choice of product-destination mix underlying a dynamic export strategy. Rather than spreading resources thinly and widely, it is time to identify sunrise export categories. India also needs to tie up special trade arrangements with countries supplying rare materials that are essential to new export products which are gaining ascendancy in the competitiveness ladder.  There is a need for designing a robust framework for promoting already identified sectors – auto parts; drugs and pharmaceuticals; electronics; textiles; food processing. To enhance their productivity should be a central feature of the export strategy, alongside the exploitation of productivity gains from sectors such as ICT, finance and business services.