Export growth faces real test from Sept

Despite August export figures jumping by 10.3 per cent year-on-year and the country completing 12 straight months of export growth, exporters and economists alike remain sure the coming months would prove to be the real challenge for merchandise exports.

That is largely because of tax refund issues under the goods and services tax (GST) regime still remaining two months down the line, exporters complaining of crippling liquidity and the rupee expected to climb steadily in the coming months.

“It should be kept in mind that till August 2016, exports were declining and therefore year-on-year comparisons would take place on a low base. From September 2016 onwards exports, started rising and figures for September 2017 would adjust accordingly,” said Ajay Sahai, director-general at Federation of Indian Export Organizations (FIEO).

The sector has continued raising the issue of the refund mechanism for taxes paid under the GST being difficult. Exporters have to now pay integrated GST on import of goods and then claim refunds based on their scrips under the new indirect tax system.

This, they say, is leading to export firms running empty on capital. As a result, order books have taken a hit of up to 15 per cent across industries and product categories, according to FIEO.

The large drop was for export orders that were meant to be delivered until October, Sahai said, adding the dip was largely on account of exporters foregoing orders due to lack of credit. This will be represented in the figures for September, he said.

With the festive season in the United States and Europe starting from November, slowing order books are a prime concern for exporters of apparel and other consumer goods.

From the August trade data, it has become evident that exports from labour-intensive sectors such as gems and jewellery, ready-made garments and handicrafts — which have a high concentration of small and medium players — have been declining consistently or are plagued by marginal growth, a Mumbai-based trade expert said.

Apparel exports grew 0.5 per cent in August after declining for three months while gems and jewellery exports declined by over 25 per cent, a weaker performance than the 22 per cent contraction in July.

On the other hand, more consolidated sectors have seen an upturn. “Engineering exports have been growing at a respectable pace and the growth is due to a pick-up in base metals. But the rupee value is a cause for concern,” said T S Bhasin, chairman of the Engineering Export Promotion Council of India.

The consistent rise of the rupee is also expected to dampen export growth and reduce competitiveness as economists predict it will continue to rise in the current financial year.

“According to our calculations, the rupee is expected to appreciate by 2-2.5 per cent at the least in the current fiscal year. Foreign portfolio investors have pumped in more than $25 billion worth of capital in the economy and that is only expected to go up as China also scouts for investment opportunities,” said Devendra Pant, chief economist at India Ratings.

The fact that ongoing geopolitical issues in Qatar, North Korea and elsewhere haven’t affected the free-flow of foreign capital bolsters that assumption, he said.

On Friday, the rupee had closed at 64.08 a dollar. So far this year, the rupee has gained six per cent, while foreign institutional investors (FIIs) have bought $6.76 billion and $20.31 billion in equity and debt, respectively.