THE FUTURE OF THE EXPORT IMPORT BUSINESS POST LOCKDOWN
The corona virus which is also known as the novel COVID-19 virus has resulted in a world-wide pandemic. Due to this India has been has been in a state of lockdown since March 25th, resulting in an economic dip. During the pandemic exports were noticed to have shrunk by 35% in March which was the biggest contraction seen in almost a decade. Full year shipments were also declined in 2019-2020 for the first time after 2015-2016. The lockdown situation in the country brought most of the major economic activities to a halt creating an area of concern for the Indian businessmen.
Now as India is slowly trying to come out of the lockdown phase, it has started the export of major farm products such as rice, meat, dairy and processed food items. A lot of effort is also being put in by the government to resolve all issues related to transportation, curfew passes and packaging units. With respect to imports, the government has stated that digital copies of phytosanitary certificates are being accepted with an undertaking from the importer for the submission of the original when received. The ministry was reported saying that the government has adopted a flexible approach in respect to issuing digital copies of phytosanitary certificates. About 2728 consignments have been reported to be released for imports so far.
In order to make up for the losses suffered during the pandemic, the government of India has begun to work on a continuity plan to improve the export import management business. The plan is to cut down import dependence, especially from China by focusing aggressively on substitution as well as improving safety compliance and quality goods to gain global market share. Commerce and industry minister Piyush Goyal said that as a part of its strategy, India will look at areas where it has capabilities but will continue to import and focus on the areas of core competence. Railway minister Suresh Prabhu was also reported saying that in the age of the changing world order, India will go beyond trade relationships to strategic partnerships. He also added that India’s strategy is to increase exports through a geography specific as well as product specific matrix in order to increase the market share.
THE IMPACT OF THE CORONA VIRUS ON THE INDIAN ECONOMY The lockdown that started with the emergence of COVID-19 was initiated in March to help tackle the spread of the virus. In the first month, March to April, unemployment rose from 6.7% to 26%. An estimate of 140 million people lost their jobs while many others had their salaries cut. Under complete lockdown less than a quarter of India’s economic movement stayed functional. Reports found that up to 53% of businesses in the country were significantly affected. Initially during the lockdown there was a lack of clarity in streamlining what goods were essential and what were not. As a result of this supply chains suffered with the lockdown restrictions in place. The impact of the lockdown was felt all over the country. From young startups like export import academies to major Indian companies like Larsen and Toubro, Maruti, Aditya Birla Group and Tata Motors, all suffered a similar fate. All of these companies were forced to either temporarily suspend their operations or significantly reduce them.The impact of the lockdown was widespread and affected the economy vastly. Import export business training in Kolkata, export import training in Dhaka, export import courses in Durgapur, were among some of the businesses that suffered leading to a deficit in training and skills in manpower training.Apart from these India also suffered heavy losses in other areas. An industry survey was done which was jointly conducted by industry body FICCI and tax consultancy Dhruva advisors. The survey took responses from 380 companies across the sectors. It was found that:
- With respect to the approved expansion plans, about 61% of the respondents expected to postpone these expansions for a period of 6-12 months while 33% expected it to get postponed for more than 12 months.
- Around 60% of surveyed firms had to postpone their fundraising plans for the next 6-12 months. Another 25% of firms were also reported to have decided the same.
- Around 43% of surveyed firms reported that they could not predict an impact on exports. Another 34% said that exports would take a hit by more than 10 percent.
- According to Dun and Bradstreet the revised GDP (Gross Domestic Product) estimates for India came down by 0.2% for the fiscal year 2020 and by 0.5% for the fiscal year 2021.
THE EFFORTS MADE BY THE INDIAN GOVERNMENT TO TACKLE THE ECONOMIC CRISIS Once the World Health Organization (WHO) declared the emergence of the corona virus as a pandemic, the Indian government announced its first nationwide lockdown in March. In response to the economic impact of the lockdown the government announced a stimulus program worth US$ 23 billion or around 0.8% of Gross Domestic Product (GDP) which helped in providing food and income security to low income households.The Reserve Bank of India (RBI) has also played a vital part in this economic crisis as it stepped in to provide adequate liquidity to counter a sudden stop in economic activity. This was done to make sure that the revenues and cash flows in firms remain unaffected.
Recent actions taken by them include:
- During March 2020, the RBI reduced the policy rate by 75 basic points (bps) to 4.4%.
- All lending institutions were ordered to allow a period of 3 months to borrowers for repayment of all term loans.
- During April 2020, the RBI announced a new set of targeted longer-term refinancing operations (TLRO) which was aimed at providing liquidity to nonbanks. In order to encourage the transmission of credit the RBI reduced the rate that it pays to the banks when they place surplus liquidity with the RBI.
In an effort to kick start exports post lockdown the Indian government has decided to focus aggressively on substituting their products while improving upon the safety compliance and ensuring quality goods to gain global market share. According to an analysis done by the commerce department, the sectors whose exports can be promoted in phase one (the first 3 months) are medical textiles, electronics, plastics and toys. The exports in phase two (the next 6 months) include pharmaceuticals and steel. These packages were distributed through cash transfers, employment support, credit support and food support.
Despite the widespread destruction caused by the virus, the leadership role that India assumed in dealing with this crisis is now being globally appreciated. India has not only managed to handle the crisis upfront but is also making all efforts to provide relief to the migrant and under privileged workers. The Indian government, in order to provide a safety net along with insurance cover for frontline medical personnel, has issued a relief package of INR 170000 MM. This move is being acknowledged as a template in the collective fight against the virus by the best import export courses, export import academies as well various export import training institutes. India is also the largest producer of the drug hydroxychloroquine which is being considered as a potential cure of the corona virus. As a gesture of good faith, India has been helping many countries with the supplies of this drug.
UNCONVENTIONAL MEASURES THAT CAN BE TAKEN TO IMPROVE THE ECONOMY
It can be said that our constructive Indian equity outlook has been founded on the structural reforms taken by the current administration in its first term. It can also be argued that with these fundamental building blocks in place, the government has an opportunity to help in economic growth through the 3 ‘R’s:
- Recycle – This stands for funding government spending needs through the privatization of state-owned enterprise assets.
- Rebuild – This stands for aggravating savings by providing the private sectors and households with tax cuts.
- Reinvest – This stands for providing incentives for manufacturing firms to make them reinvest such savings to substitute imports and help in increasing the country’s global market share of exports.
- The RBI contributes to state finances by providing them with shorts terms loans called the ways and means advances (WMA). If the RBI could temporarily increase the duration of credit that is disbursed through the WMAs, it could be able to substitute a sizable portion of the market borrowings for a strong fight against the pandemic.
- The RBI could enter the secondary market for state government bonds. Then as a part of domestic investment by its banking department, it could assume an indirect role in purchasing bonds. The resultant increased demand for the state government bonds would lead to a reduction in their interest rates. This reduction would then later translate into a lower cost of borrowings for the state governments and put them in a more sustainable debt position. This is similar to the role played by the US FED in the municipal bonds market following the 2008 recession.
- The RBI could purchase government bonds directly from the state governments without entering the government bond market. This would go a long way in reducing the cost of borrowing from different states. It would also facilitate a feasible exit strategy at the end of the pandemic. Although economics usually do-not advocate for such direct monetization due to inflationary concerns, the inflation rate remains below the 4% and is continuing to trend downwards. Even the former finance minister, Yashwant Sinha, who introduced the FRBM Bill was reported to agree with this logic.
WAYS TO IMPROVE THE EXPORT AND IMPORT PERFORMANCE POST THE PANDEMIC
Anyone who has studied export import courses after 12th knows that in India the process for imports across the country are more than those for exports which greatly reduces the balance of payment in our favors.
It is also a well-known fact that there are inordinate delays in loading and custom processes in Indian sea-ports. The large variance in the process time means that the exporters have no choice but to add extra waiting time because of the uncertainty. In addition to that we also lack the infrastructure to efficiently carry the consignments to ports like the warehouse, cold storage facilities etc. which in turn is detrimental to our export growth.
As a result of all this the economic survey suggested that the government should integrate ‘Made in India’ into its flagship program to help boost exports and therefore generate jobs. The objective of this program is to raise India’s export market shares to about 3.5% by 2025 which will be doubling it from the current level. It is expected that this will result in 40 MM - 80 MM new jobs.
According to the study materials of the best import export courses of Exim Guild if India wants to become a major exporter of the world, it should specialize more in the areas of its comparative advantage and achieve significant quantity expansion. The economic survey also states that India is spreading its exports thinly over many products and partners which is in turn leading to its lackluster performance in comparison to China. One way to improve the ease of doing business in terms of trading across borders would be to replicate the processes of Indian airports and adapt them in sea ports. This would help to record the time and cost associated with the logical process of exporting and importing goods.
It can be said that most of the factors behind increasing export and decreasing imports are within the control of India. The issue is our lack of success in the effort to diversify our exports into manufactured consumer goods like China. There is a good scope of stepping up earnings from drugs, pharmaceuticals, organic, inorganic chemicals and engineering goods. There is also a need to look into new export markets especially in places like Africa. India has already done well in the area of fuel, oil and oil products. In future efforts should be made to find new products as well as markets.
By- Antashri Banerjee
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