Can Indian Commodities Exports Grow in Future?

After nearly two years of the international trade devastating Coronavirus pandemic, there may be good news for exporters. Credit ratings agency India Ratings & Research (Ind-Ra) said Indian commodities exports are poised for growth in the next 12 months, propelled by falling Covid, increasing growth and demand in India’s major export destinations, and rising global imports.

In 2021, imports have been forecast to rise by 11.4 percent in North America and 8.4 percent in Europe. It noted that the 2021 fiscal data gives the impression that major export destinations for India’s top 10 commodities are regions which are forecast to witness strong imports. Ind-Ra highlighted that India’s exports rose by 195.72 percent in April, 69.35 percent in May and 48.35 percent in June 2021.

As per the latest Federation of Indian Chambers of Commerce and Industry’s (FICCI) quarterly survey of the manufacturing sector, 58 percent of the participants are expecting a rise in Q2, 2021 – 22 while 30 percent think that export trends may proceed in the same fashion as in Q1.

However, all must keep in mind the lower monthly export metrics due to the Covid economic mayhem. As 2020 was not a normal year unlike 2019, the relatively lower exports from that year when compared with that of 2021 may give an impression of very high exports growth but in reality that may not be the case.  

Read on to know more about:

• Performance of exports in August, 2021
• Performance of exports in September, 2021
• Does FIEO exude confidence on exports?
• How the Indian government is giving impetus to bolster exports
• Challenges for exports from India
• Exports outlook for the second half of 2021 – 22

Performance of merchandise exports in Aug 2021

Powered by commodities such as engineering goods, petroleum products, gems and jewellery, organic and inorganic chemicals, and pharmaceuticals, merchandise exports amounted to $33.28 billion in August, rising by 46 percent YoY. However, exports declined by 6 percent from that in July which was at $35.43 billion.

Compared to the last fiscal, the total value of merchandise exports from April to August in the current fiscal increased by 67.33 percent to $164.1 billion.

Performance of merchandise exports in Sep 2021

Just like August, a similar mix of commodities propelled merchandise exports to rise by 22.7 percent YoY to $33.79 billion in September, a marginal sequential growth from August. Total merchandise exports in the first six months of 2021 – 22 amounted to $197.89 billion. Commerce Secretary B. V. R. Subrahmanyam expressed confidence that India can meet the $400 billion merchandise export target in 2021 – 22. In 2020 – 21, India’s total merchandise exports were valued at $292 billion, lower than in 2018 – 19 when the country witnessed its best merchandise export performance, at $330 billion.  

Does FIEO exude confidence on exports?

A. Sakthivel, President of FIEO said merchandise exports as a whole, which also include commodities, logged impressive growth, rising by 50 percent to $35.43 billion compared to July 2020. He said the cumulative value of merchandise exports from April to July stood at $130.82 billion, registering a high double digit growth of 75 percent, compared to the same period in 2020 - 21. Though the government is doing its bit in encouraging exports, Sakthivel observed that the need of the hour is to address the issues left out of Remission of Duties and Taxes on Exported Products (RoDTEP).

RoDTEP is a much-awaited scheme replacing the Merchandise Exports from India Scheme (MEIS), and aimed at boosting Indian exports and competitiveness globally. MEIS was instituted for the period 2015 - 2020 to reward exporters and offset infrastructural inefficiencies and related costs. It was discontinued because it was not compliant with the World Trade Organisation (WTO) norms.  

RoDTEP is a reform based on the globally accepted principle which mandates that taxes and duties should not be exported. It aims to refund the currently unrefunded duties, taxes, and levies borne on exported products at the central, state, and local levels. It will also include early stage cumulative indirect taxes on goods and services used to produce the product for export.  

Sakhtivel also called for the release of funds allocated to MEIS, priority status to the exports sector, resolving key exporters’ issues, supplement flow of empty containers, establishing a regulatory authority to justify freight hike, and a freight support scheme among others.  

He highlighted that RoDTEP rates will give predictability, stability and liquidity to Indian exports while Rebate of State and Central Taxes and Levies (RoSCTL) scheme is aimed at raising competitiveness, attracting investments and also spurring employment. RoSCTL is a scheme to offer rebate on all embedded central and state taxes and levies meant for exports of made up articles and garments.  

Refer the below tables for a snapshot of five major commodities exports which rose and fell in September 2021. Among 30 major export commodities, 24 witnessed growth, which also include cotton/yarn/made-ups, handlooms products, RMG of all textiles, electronic goods, plastic and linoleum, rice and marine products among others.  

How the Indian government is giving impetus to exports?

The Indian Government is doing its bit to promote exports by implementing various schemes and measures:

• To clear pending incentives to exporters
• Maritime India Vision 2030
• Land Ports Authority of India (LPAI) boosting cross border trade
• One District One Product (ODOP) scheme
• Prime Minister Narendra Modi advised diplomatic missions to identify exportable products

To clear pending incentives to exporters

Indian government will disburse INR 56,027 crore in 2021 – 22 as part of export incentives, benefiting 45,000 exporters. Nearly 98 percent of them are Micro Small and Medium Enterprises (MSMEs).

Maritime India Vision 2030

This 10-year blueprint aims to transform the Indian maritime sector with an investment of INR 3 lakh crore, acting as a facilitator for exports. With the maritime vision, the government aims to raise transshipment volumes of Indian cargo within Indian ports, from 25 percent in 2020 to 75 percent by 2030, thereby saving money and avoiding payments to foreign ports. Other ambitions include implementation of an enterprise business system (EBS) to digitize operations at major ports. This will include introducing paperless procedures through a national marine logistics portal as well as an e-registration portal.

Land Ports Authority of India (LPAI) boosting cross border trade

Established in 2012, LPAI pioneered the concept of land ports in India through Integrated Check Posts (ICPs), furthering trade with Pakistan at Attari, Bangladesh at Agartala, Petrapole, Srimantapur and Sutarkandi, Nepal at Raxaul and Jogbani, and Myanmar at Moreh. These ICPs handled exports worth INR 81,260 crore in 2020 – 21, enabling the movement of 4.2 lakh trucks. Numbering nine at the moment, ICPs are expected to rise up to 24 by 2030. However, India should also focus on de-clogging these border trade posts as they are witnessing heavy traffic and chaos.

‍One District One Product (ODOP) scheme

ODOP is an export promotion and market accessibility scheme being spearheaded by the Central government. The aim is to identify one top class product synonymous with each of the 739 districts to provide support for integration into supply chain, brand building, marketing and others. As part of developing the districts as export hubs, 106 exportable items have been identified from 103 districts under the first phase of ODOP by the Commerce Ministry, along with the states.

ODOP holds the potential to diversify India’s export basket and was even endorsed by Prime Minister Narendra Modi. Modi observed that ODOP will enable balanced regional development across districts. There will be ample scope for commodities exports under ODOP. Some products identified through this scheme include machine parts from Tamil Nadu, Naga Mirchi from Nagaland and best quality turmeric Lakadong from Meghalaya.

PM Narendra Modi advised diplomatic missions to identify exportable products

Modi called upon the Indian diplomatic corps and export promotion councils to target the $400 billion merchandise exports target and to take advantage of post-Covid opportunities.  

Challenges for India exports

• Transshipment woes
• Container shortage
• Rail movement of containers
• Skyrocketing freight charges
• Will the impending power crisis strike exports

Transshipment woes

As reported in the Business Line newspaper this September, Indian ports lose $220 million of potential revenues due to cargo transshipments originating and destined for India, moving through international ports. This subjects Indian exports to cost vulnerabilities, congestion, inefficiencies and affect trade competitiveness. It costs up to $100 more for each twenty-foot equivalent unit (TEU) to be handled at a foreign transshipment hub. Currently, majority of India’s transshipments take place at ports in Colombo, Singapore, and Port Klang.

These reasons have made a compelling case for a transshipment hub to come up at an ideal location in southern India. The Indian government has initiated steps to build a transshipment terminal at the Great Nicobar Island in Andaman and Nicobar Islands and intends to set up more such terminals in the future.  

Container shortage

At a time when the Indian economy and exports are slowly resurging and looking forward to the Christmas demand, after the crippling second wave of Coronavirus, container shortage is playing spoilsport. In the first week of September, Business Line reported how Chinese ports shutdowns due to Covid are impacting exporters as far away as in Kerala. Container shortage and exorbitant freight rates have even impacted tea price auctions in the southern state. Shipping lines are preferring to ferry exports between China and the US, and China and Europe, affecting other Asian nations’ export interests.

Containers shipped to the US and Europe are not easily returning from those geographies, further aggravating scarcity of boxes in countries like India, especially at a time when a large portion of air freight has been diverted to the sea due to the pandemic. Consequently, Indian exporters are urging the government to extend the time limit allowed to keep empty containers in the country without incurring import duty.

According to current customs department rules, empties or destuffed containers can be kept within the country for six months, beyond which import duty will be levied. Amid acute container shortage, exporters are demanding this limit to be stretched up to 12 months. They also called for strengthening the state-run Shipping Corporation of India (SCI) while there is an ample room for Container Corporation of India (CONCOR) to play a bigger role.

Rail movement of containers

As it nearly takes a fortnight on the road, for empty containers to reach exporters in the hinterland, the government is contemplating moving empties by rail. It will take just three days to reach exporters in North India from ports located in the western part of the country, compared to two weeks by road.

Skyrocketing freight charges

A 20 foot container to the US, which was usually available at $3,000, was costing $14,000 in the first week of September. Similarly, the cost of a 40 foot container shot up to $18,000 from $5,000. It is important to look at the case of All India Spice Exporters Forum to understand the predicament of rising freight costs. Exporters who signed long term cost, insurance and freight (CIF) contracts are unable to renegotiate their deals in the light of skyrocketing costs as customers are not ready to rework the contracts, dealing a massive blow to exporters and compelling them to suffer losses. As a result, exporters are bearing the excessive freight costs and still living up to the contracts signed with international customers.

Considering this scenario, the Indian Spices and Foodstuff Exporters’ Association, Federation of Indian Spice Stakeholders and the All India Spices Exporters Forum have demanded that the cartelization, monopolization and restrictive trade practices of big shipping companies should be ended. These three organizations demanded the government to audit and start a high level probe into the costs of shipping lines, including making them come forward to agree to short term and medium term contracts.

Indian exporters are asking for domestic manufacturing of containers. It is also noteworthy to take note of how China is dictating world trade, empowered by its early investments in shipping container manufacturing. Due to exorbitant freight costs, Indian exporters are demanding the government to establish a regulatory authority for justifying freight costs and the imposition of several charges by shipping lines. Sakthivel asked the government to provide freight support till March 31st, 2022.  

Will the impending power crisis strike exports?

At a time when India is staring at a coal shortage, the lion’s share of coal supplies are being routed to coal fired power plants, depriving many power hungry industries which export. It remains to be seen how this difficult situation will be coped with by the industries. Will there be curbs? According to the Aluminium Association of India, more than a two-hour power cut can force plant shutdowns for six long months, leading to massive losses and job cuts. Commodities industries which are vulnerable to the power crisis include petroleum, steel, aluminum, meat, sugar, and others.  

Exports outlook for the second half of 2021 – 22

Despite the challenges, Indian exporters are optimistic. Encouraged by a remarkable growth of 57.53 percent in merchandise exports in H1, 2021-22, Shaktivel said that the country is on course to achieving its $400 billion merchandise export target.  He noted that crossing $197 billion in merchandise exports in the first six months of 2021 - 22 during these challenging times of the Coronavirus pandemic is spectacular performance. Shaktivel said recovering global economies, high order bookings for the forthcoming festive months, and supportive government policies are an impetus for exports.