Engineering exporters are going through one of the most turbulent and trying times. The engineering sector contributes more than 25% of India’s total merchandise export of $320 billion dollars and is one of the biggest employment generators in the country. Engineering exporters have to compete with China, Vietnam, Taiwan, Malaysia etc. and these countries have the best infrastructure, fast and cost-efficient ports, competitive inland transportation costs and substantial cash subsidies from their governments. Unfortunately, in spite of being such an important sector, engineering exporters are now on the verge of losing a sizeable portion of their business to other countries which will lead to large scale layoffs and permanent closure of factories.
Listed below are some urgent steps that need to be taken to save the engineering sector:
Steep Increase in steel prices
The biggest threat that exporters are now facing is the unprecedented and continuous increase in steel prices. In July 2020, the price for cold rolled coil was in the range of `43,000 to `44,000 which has now gone up to the excess of `65,000 per MT - which is an increase of almost 50%. No consumer can survive such an increase and international buyers are not willing to absorb such high costs since suppliers from other countries have not increased their cost. Engineering exporters should get steel at prices which are at least 20% lower than the current prices.
Abnormal increase in ocean freight rates
Another big shock came with the increase in container freight rates which have risen by nearly 80%. Freight for a 40’container to the US East Coast went up from $2200 in June 2020 to almost $4000 now - having an increase of almost 80%. Shipping lines are operating like cartels - demanding exorbitant freight rates. If these rates are not brought under control then Indian exports will come to a grinding halt.
Increase in cost of other inputs
The price of corrugated boxes has gone up by almost 25% since July 2020. This kind of increase in such a short span of time is totally prohibitive and needs to be rolled back.
Non-issuance of MEIS Entitlement Certificate for the Year 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 licenses have caused huge cash flow problems - specially to MSME exporters - since they had factored that amount at the time of quoting. The government should immediately issue MEIS licenses to improve the situation.
New Remission of Duties and Taxes on Export Scheme (RoDTEP) announced
The government has announced a new RoDTep scheme for exporters from January 2021 but till date no rates have been announced. The government should immediately announce the rates with increased allocation so that exporters can garner a bigger share in the market.
The current onslaught of unprecedented increase in all cost parameters will completely derail the engineering sector. A large number of units have already started refusing orders and are on the verge of shutting down. If such trends go unchecked it will cause mass scale unemployment. The government should think about saving the biggest contributor to India’s merchandise export basket and announce immediate relief measures.
The author is the MD, Patton International Limited.