How economic headwinds are preventing Indian companies from expanding exports | Jobs Recent


Indian companies are looking to expand their exports in the coming years as the government focuses on trying to reduce the trade deficit and countries diversify their supply chains geographically.

“I think there is a general realization that India needs to play a bigger role in the global supply chain,” says Adarsh ​​Sharma, managing director of consultancy Primus Partners.

The coronavirus pandemic has helped accelerate that process, he says.

However, Indian exporters are facing difficulties due to fears of a global recession and currency fluctuations that could hamper business in the short term, analysts said.

Given that India’s export contribution to world trade is still relatively low, this leaves enormous room for growth in this decade.

India’s merchandise exports may more than double to $1 trillion in 2028, from $418 billion in the fiscal year to March 2022, according to Bain & Company. Factors such as diversification, government initiatives to strengthen manufacturing in the country and increased investment in the sector are contributing to this.

Among the companies looking to take advantage of the opportunity is Godrej Process Equipment, which manufactures equipment for the oil and gas sector. The company is part of one of India’s oldest conglomerates, the Godrej Group.

“So far we have supplied to 36 countries and we plan to reach 40 by next year,” says Hussain Shariyarr, senior vice president and business head, Godrej Process Equipment.

Exports represent about 40 percent of the company’s business, and the goal is to eventually increase it to as much as 80 percent, he adds.

To help expand its exports, Godrej has invested in expanding its manufacturing facility in Dahe in the western state of Gujarat.

“The company is improving its capacity and ability to focus on and expand its global footprint,” says Mr. Shariyarr and adds that the company’s exports declined during the pandemic, but business abroad is recovering.

“With the prospect of major global projects in the Middle East and America, we are gradually gaining more export business,” he says.

Along with industrial machinery, products including chemicals, pharmaceuticals, electronics, automobiles and textiles will play a key role in India’s export growth, according to Bain & Company.

Although India is the world’s fifth-largest economy and S&P Global Ratings predicts it will overtake Germany and Japan to climb to third place by 2030, Bain’s research shows its export contribution to global trade is just 1.6 percent.

As part of India’s efforts to expand trade, it is pushing for free trade agreements. New Delhi is in the process of negotiating a free trade agreement with the United Kingdom, which they hope will boost exports of textiles, food and jewelry, among other things.

The South Asian country’s free trade agreement with Australia will enter into force on December 29.

Earlier this year, India and the UAE signed a comprehensive economic partnership agreement aimed at increasing the total value of bilateral trade to over $100 billion over five years.

Delhi-based Pansari Group, which manufactures wheat flour and edible oils along with other food products, has started exporting its goods in recent years.

The company now ships its products to more than 60 countries, including the GCC region, Canada and Australia.

“Our experience this year has been mixed,” says Pansari Group CEO Shammi Agarwal.

“In the first two quarters, we saw a huge increase in wheat exports as Russia halted wheat exports due to the conflict with Ukraine and the world looked to India to manage the supply chain.

“Later, the numbers dropped due to the wheat export ban imposed by the government.”

This year, the Indian government banned exports of wheat and wheat flour to cool domestic prices as crops were hit by heat waves.

“Currently, many subsidies are suspended and levies are used to control domestic food prices, which is correct and beneficial for Indian customers,” says Mr Agarwal.

“We expect that by next year [when] if these rules are changed, it will increase the benefits of exporters and exports will increase.”
However, he points out that one of the biggest challenges facing exporters in India is the changing government policies.

“The main challenge any Indian exporter faces is currency fluctuations – changes in the value of the dollar,” says Mr Agarwal.

Apart from worries about currency movements, Indian exporters are heavily burdened by the uncertain outlook of the global economy and the inflation scenario.

The International Monetary Fund has warned that the global economic outlook has worsened since it issued its last projection in October, when it cut its global growth forecast for 2023 from 2.9 percent to 2.7 percent.

Several economists now predict that global growth will slip below 2 percent next year.

“Forecasts for next year are for sales and traffic to fall with the impending recession,” says Meenakshi Kalsi, managing partner of Metro and Metro Shoes, which exports its footwear to markets in Europe and the US.

Other worrisome factors include Russia’s war in Ukraine, which is causing geopolitical instability and the unpredictability of materials from China, as well as freight costs due to fluctuating fuel prices, Kalsi says.

Aditya Gupta, founder of The Rug Republic, which exports its handmade Indian rugs to 85 countries, has similar concerns.

The company has reported a 25% decline in earnings in 2022 as consumers shift their spending preferences to travel and socializing, it says.

“I expect 2023 to be slower than 2022 due to the economic conditions that threaten the world with high interest rates and low GDP. [gross domestic product] growth,” says Mr. Gupta, adding that the company’s main markets are Europe and the US.

“Apart from various export restrictions, exports continued to be affected by weak global demand,” says Madhavi Arora, lead economist at Emkay Global Financial Services in Mumbai.

India’s exports rose modestly in November, official data showed. Merchandise exports last month totaled $31.99 billion, up 0.59 percent from a year earlier. This followed a 16.7 percent year-on-year decline in India’s exports in October.

“The underlying trend remains weak,” says Sonal Varma, chief economist for India and Asia (excluding Japan) at Nomura Holdings, a global financial services group.

India’s low exports are a challenge to the country’s trade and current account deficits – although imports have also been falling recently due to factors including lower oil prices.

“We expect the current account deficit to narrow to 2.5 percent of GDP in 2023 from 3 percent in 2022, but financing this deficit will still require large debt and capital inflows,” says Varma.

An increase in exports would help redress the imbalance.

From India’s point of view, I think it will be a two-pronged or rather a two-pronged strategy that will not only focus on increasing dollar-earning exports but also import substitution,” says Mr. Sharma of Primus Partners.

“As a country, we are heavily dependent on the import of goods and raw materials.”

Working to ensure that Indian goods meet the quality and varying standards set by overseas markets is another hurdle that the country and companies need to work on.

“We are also seeing Indian products getting better and better to meet the demand and quality standards of other countries,” says Sharath Loganathan, co-founder of Indian fresh food delivery chain Ninjacart, which is backed by US retail giant Walmart.

The company expanded internationally with the launch of an import-export platform in September. “There’s a lot of opportunity, but a lot more needs to be done,” says Mr Loganathan.
Source: The National News



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