Engineering exports expected to power on, but not without hurdles

After-effects of demonetisation may derail production plans of medium and small enterprises

A sharp rise in demand, spending recovery in import markets and a low base effect will likely see engineering exports, crucial to the country’s export revival, upsurge in the near future.
 
Rising for the sixth straight month, exports posted a 17.48 per cent jump year over year in February, the highest rate in more than five years. Apart from petroleum exports, this spike was fueled by engineering goods, exports of which rose by more than 47 per cent in February, up from an 11.89 per cent rise in January. This has been attributed to spending recovery in major markets like the US. The UK, France, Italy and the Netherlands are also expected to continue to bulk up order books, the Engineering Exports Promotion Council (EEPC) has said.
 
However, an impending manufacturing slump owing to medium and small manufacturers being cut off from necessary working capital by demonetisation is a looming threat.
 
Such units make up almost 40 per cent of the sector and almost five months after demonetisation they have not recovered production, according to industry sources. This might put up a sudden challenge to exporters facing an influx of new orders from major markets. The contribution of engineering goods to India’s total exports was 10.2 per cent in February, against 2.7 per cent in January.
 
Excluding engineering goods, export growth would be only 9.3 per cent in February, according to a State Bank of India (SBI) research team headed by group chief economic advisor Soumya Kanti Ghosh.
 
The footprint of the sector on overall exports also continues to be large. Total engineering goods exports were $57 billion in the first 11 months of the current financial year while cumulative exports reached $239 billion. With the country yet to reach the government's informal target of cumulative exports of $260 billion, all eyes were on the sector, an official said.
 
With global conditions persisting, engineering exports could reach $70 billion, said Bhaskar Sarkar, executive director of the  EEPC.

 
The sector includes a huge range of goods, including metal products, industrial machinery and equipment, automobiles and components, and transport equipment.  Of these, non-ferrous metals and automobile exports were expected to hold their own, Sarkar said.
 
"The latest rise was led essentially by steel exports, which are not sustainable in the long term. International prices will correct and we are nowhere near the production levels of China," he added.
 
The EEPC has also warned that India continues to export low value-added products like billets and ingots while protection to the domestic industry curtails high growth of steel products.
 
Car exports have done well but component exports have not picked up while exports of two- and three-wheelers are positive but need to firm up, according to Sarkar.