With the outbreak of COVID-19 and the ensuing collapse in economic activities have hurt Indian trade more than what the numbers are showing.
"... whatever exports have taken place, they are mostly commodities like rice, cereal and so on. The manufactured products are still suffering. For example, engineering goods, chemicals, then labor-oriented industries like handicraft, leather, carpet, these are all suffering huge downfall," Sharad Saraf, President - Federation of Indian Export Organisations, told Moneycontrol in an interview.
He also said that for the last three years, India's exports have been about $330 billion. However, this year, India may not be able to do $300 billion, or even $290 billion worth of trade, as things stand.
With the outbreak of Covid and it becoming a reality now, what are the challenges facing Indian trade in such a backdrop?
The macro picture is visible from the figures of GDP, core growth and IIP and so on, which are all in public domain. But the underlying situation in the grassroot levels at the moment is very bad. For example, you say that export is down by. say, 20 percent from April to October 31.
But, if you see in real analysis, then we are down even more than that, because whatever exports have taken place, they are mostly commodities like rice, cereal and so on. The manufactured products are still suffering. For example, engineering goods, chemicals, then labor-oriented industries like handicraft, leather, carpet, these are all suffering huge downfalls.
So, therefore, if we see sector-wise, then obviously joblessness will increase substantially. The export sector improvement is very weak. It is not sustainable for various reasons. One of the main reasons is freight and availability of empty containers.
The ministry says we have no power to regulate freight. What we have suggested is that there should be a regulatory agency for shipping to ensure some kind of discipline is there. The shipping companies are not only increasing the freight on a month to month basis, but they are levying all kinds of additional charges. Terminal handling charges are being charged by the port and to be paid by the shippers. So, how does the shipping company come into picture? They are forcing exporters to pay two three times the port charges and when this issue was raised, they said we have to take responsibility for the container, we have to incur some cleaning charge.
The other problem, and the more long-term one is MEIS (Merchandise Exports from India Scheme). We have pointed out that MEIS is a duty remission scheme, reimbursement of embedded duty. The issue of WTO came up because of that letter I. They should not have used incentive in the scheme. It is not an incentive. Calculations of Remission of Duties and Taxes on Exported Products (RoDTEP) scheme is certainly higher than MEIS.
For the last three years, our exports have been about $330 billion. This year, we will not do $300 billion or even $290 billion as things go.
So, how much of it is a COVID impact?
The volumes have also come down. Particularly in textiles as most the shops are closed. These are all Covid affected - textiles, handicrafts, carpets. The export of all consumer goods are all Covid-affected. I would think the entire economy would be impacted by as much as 15 percent. Now, that may not translate to GDP, because GDP calculations are different.
But if you see joblessness as one of the effects on the economy, then we would be down by 15 percent.
How do you evaluate the issue of dependence on China?
We had a great bonhomie with China till about two years back. We merrily depended on China for everything. So, we are now so badly dependent on China and we have not done anything to ease starting a business in India, which is different from starting to do business in India. If you allow me to start the business in three, four years time if I survive, I will know how to run it. So that ease of doing business comes much later. First is ease of starting business.
Today, ease of starting business is the worst in India. It is the most difficult country to start a business in. It is not so difficult to run the business once it's started.
To better this, the involvement of the state government is a must. We had suggested that each district should have an industrial hub, like in Germany, or in Japan. Every district needs to have an industrial hub. I must compliment the UP government for taking this up. They are going to make every district of UP industrial up and they've given FIEO (Federation of Indian Export Organisations) 75 districts in UP for helping them out. Each district of UP can be an agro-processing unit.
Unless we do massive industrialization, which cannot happen overnight, we will continue to depend on China.
There is a pre-Covid reality now and a post-Covid reality. in a post-Covid world, how do you think that the nature of trade between countries would change?
Yes, one thing that has happened during the Covid period, which is also significant, which may impact India significantly, is the RCEP (Regional Comprehensive Economic Partnership). It will entirely go to Chinese advantage. A lot of even foreign investment was to come to India for manufacturing for domestic, as well as to ASEAN, will go there.
In Vietnam, the land cost has doubled. Workers availability has gone down completely. Same thing in Myanmar, in Thailand. Unless we do our own FTA (Free Trade Agreement) with the US, EU and Japan, we will be at a very serious disadvantage. The Comprehensive Economic Partnership we have, is not helping. We need a stronger, proper FTA.
Since we're talking about FTAs, coming to the US presidential elections. Now with Joe Biden coming in, how do you see US-India trade changing?
Certainly it will improve because President Trump was more protectionist while Biden is not. So it will definitely come to our advantage. Our trade will improve clearly under the Biden dispensation.
How should India bargain with US and EU for FTAs?
FTA is entirely bilateral. Therefore, there has to be a given take. Essentially we have to see what products we can allow them to put duty on. Say for wine. Indian wine sale there is miniscule while there's sale here is large. So, we have to see how we can negotiate this situation.
Doing FTAs with the US or EU is much easier than doing RCEP. I am happy we did not participate in RCEP. We cannot be sitting at the same table as China with respect to trade. We are no match with them. But in the case of the EU and the US, whatever market access we give them, it will be only in our favour. There is no way in which they can flood India with cheap products the way China does.