“Make in India should propel exports”
“If your actions inspire others to dream more, learn more, do more and become more, you are a leader.” —John Quincy Adams -> Interview with Mr Ajay Sahai, Director General and CEO, Federation of Indian Export Organizations
What kind of support structures are in place from the Government to bolster exports?
Government has provided some support on manufacturing and exports. The major support from the Government has been on tax concessions, basically available to small and medium companies. They come with excise exemptions, but I am not sure how long it will continue the GST regime. In a way signals are being given that small and medium companies have to gear up to face challenges. At the same time we have to look at the kind of disabilities they have, and we have to find ways to address those. The single most important issue for such companies is the cost of credit, and then it is about availability of credit. Whatever Government figures may say, the fact is that small companies are not borrowing from the formal sector. Eighty per cent of the corpus comes from personal savings, balance is from informal sources. We have to bring them to the formal sector, to the banks, rather than allowing them to go NBFCs and money lenders. Banks have a little more proactive role to play. We talk about instructions from the Central Bank for collateral-free borrowing, but nobody gets such loans. The reason is that the insurance cover provided to banks against collateral-free loans is cumbersome and, therefore, banks are reluctant to walk that path.
Kindly elaborate on the cost-of-credit factor…
First of all we have to ensure that credit is available, and available at a reasonable cost. I do agree that it may not be possible to bring cost to 5-6 per cent, which is currently the norm in South East Asia, and China. But somehow we have to bring credit cost to less than 10 per cent. At the moment small and medium companies are getting credit at 13-13.5 per cent, which is far too high. Secondly with the global situation turning grim, the entire cycle of exports has been elongated. So now you require credit for a longer period. Earlier when buyer was receiving the goods, he was remitting the money. Today the buyer is saying that only after he sells the goods he will remit the money. So if the credit rate is higher, and the exporter requires credit over a longer period than before, we are basically killing him. The Government needs to support on this issue. Thirdly, we find that there are marketing schemes, but the corpus of this scheme is so low that it hardly supports marketing expenditure. At present we are taking a Rs 300 crore support for an export base of Rs 20,00,000 crore which is absolutely miniscule. Even in advanced economies, they are providing a huge support to small and medium companies. We must remember that SMEs hardly have the resources to market their products. And unless they market their products and package it in a nice way, customers will not be attracted. Besides, at tough times like these they are not going into the market, because they feel they will not get orders. The point is if you are not visible in the market, then when conditions improve you may not get orders. So the need of the hour is to be visible in the market, and contact the buyers. We may not get an order immediately, but the moment there is an improvement in the situation, I am sure those buyers will come back to you.
What kind of support system are you asking for to strengthen exports?
I am asking that for exports let us bring back the interest subvention scheme that was providing 3 per cent subvention to the export sector, and which was definitely helping the small companies in a big way. The scheme, unfortunately, lapsed on March 31, 2014. We are still awaiting its reintroduction. While industry wants its reintroduction from April 1, 2014, we are a little apprehensive. But we are hopeful that the scheme will be reintroduced with effect from April 1, 2015. Secondly I think Government should encourage enterprise to go for expansion and modernization. So whatever support Government can provide on these fronts will be welcome. It can either be by reducing the rate of interest for those who are borrowing or purchasing capital goods, or Government can provide tax concessions on the direct tax front. Lot of countries are doing so at present. Developing countries like Singapore provide market deduction expenses wherein whatever expenditure you do on developing your market abroad, 200 per cent of that is allowed as tax deduction. So let us assume that I spend Rs 1 crore in developing market in Africa, Government gives me Rs 2 crore as tax deduction. So it is a great incentive that has been given. We have to look into that. We are talking of direct tax code, and we are talking about investment linked benefit, these are the investment linked benefits that are the need of the hour. It may be in technology, it may be in marketing. But this kind of support has to be given. So that industry and export sector can thrive in difficult situation.
From the high of September 2014, export earnings have dipped considerably in the first three months of fiscal 2015. Your views on this…
In fact let me return to 2014. What has happened is that from July 2014, crude prices started declining. Crude prices were USD 100 a barrel in July, they came down sharply in September. I think in October and November it came down to USD 75 a barrel. So one of the reasons is that if exports in the petroleum sector declines by 50 per cent, and overall this sector contributes 20 per cent to my exports, automatically exports drop down by 10 per cent. This is what we have seen in the first three months. But I think there are other issues that need to be considered here. It is indeed worrying that even in sectors such as engineering, we are facing a stiff competition, and this will increase in years to come. The lesson for industry is that we have to look at cost cutting, and this can happen very effectively by applying IT in every area of operation. This will reduce cost, and increase productivity. There is also the important issue of skilling of labour. In China roughly 95 per cent of the labour is skilled on a regular basis, in India’s case it is only around 16 per cent. So unless we skill the worker we will not be able to get productivity. For a businessman, wages means per unit cost of production. So if I have a person whose wage is twice a normal person, and this person produces four times more than a normal person, his wages for me is less, for it is directly linked to production. That is why initiatives like Skill India by the Government in which we are talking of skilling 400 million workers by 2022 are very laudable. At the same time the mismatch between demand and availability has to be eliminated. It is strange that on one hand industry says there are no skilled workers available, while Government is skilling millions of people. What we have suggested to Secretary, MSME is that let us look at building a portal in which details of all those skilled are available, so that industry can directly approach them. Having said this, it is important also to remember that the skills imparted today may not be relevant two years down the line. So there is a need to continuously upgrade skills, and this is where we need to learn from the China story.