Exports Focus Now Will Solve Many Problems

Export can help business & industry make up for reduced domestic demand, help retain jobs, increase GDP.

Exports
Focus on exports to increase GDP

We need to convert the current temporary phase of slow down into an opportunity for boosting exports

I had co-authored an article in PGurus titled, Suggestion to Focus Now On Exports, Post-Demonetization on February 11, 2017, wherein we had suggested how India can increase its exports phenomenally, esp to Africa (and other developing countries).

We had argued, “Demonetisation has shrunk the demand for most goods and services in the near to medium term. There is the accumulation of cash in the banks with little credit off-take by business & industry, as they are beset with excess capacity… (We are) likely to have temporary and even permanent job losses, with MSMEs and informal sectors being the worst hit.”

We continued, “…an opportunity space is available for export (of projects, products and services; let’s collectively call all these as project exports for ease of referencing here). Export can help business & industry make up for reduced domestic demand, help retain jobs, make profitable use of the cash with banks, and increase GDP.

Tendering is waived in the case of small & mid-sized projects which come with finance, with better than normal margins.

“There are global markets… with low entry barriers like Africa (and developing countries) which are low-hanging fruits where, if the Government offers credit (making use of available cash) with adequate safeguards, our business & industry can secure business fairly easily.

“Typically, ExIm Bank assists Indian Companies in handling project exports for Government Clients, through soft loans (through schemes like Buyer’s Credit). The Client is required to provide Sovereign Guarantee for the loan…

“China is already an aggressive player in Africa… many African Governments and private players are keen to do business with Indian vendors, given our strong reputation in the capacity building alongside project delivery. But we are handicapped by limitations of our bandwidth to finance projects.

“The Indian Government may not be as aggressive as China (securing projects for its vendors).

A good start for the Indian Government may be to popularize its export support schemes and increase its help to Indian Companies substantially (particularly MSMEs) to secure projects (in both Government and private sectors), by providing Buyer’s Credit from out of its excess cash.

“There are lots and lots of projects in various sectors… from across Africa chasing competent vendors who can also fund them as term loans.

Our companies can secure many projects in a matter of months. Tendering is waived in the case of small & mid-sized projects which come with finance, with better than normal margins. This will particularly help our MSMEs leapfrog…

Export is also a market where some unscrupulous people indulge in large-scale money laundering; appropriate checks should continue to prevent this.

“…we may have to find ways to drastically reduce the time for processing financing requests, since demand slowdown is already upon us, and time is of the essence for our business & industry to retain jobs and generate new ones.

“We need to convert the current temporary phase of slowdown into an opportunity for boosting exports, not only for the short term but even for the long-term… And if many new Indian companies, small and large, execute their maiden projects in Africa successfully now, they will find it easier to get more projects from Africa even after normalcy returns to Indian economy, and this will boost Indian exports substantially for the long term as well, something that we may not have done with gusto in normal times.

“… we are not saying this is a solution for every Indian company …or that this will address the slowdown in economy substantially…

“Export is also a market where some unscrupulous people indulge in large-scale money laundering through under/over-invoicing; appropriate checks should continue to prevent this.

“In summary, the impact this initiative will have on Indian economy could be significant. Since Africa is behind India in terms of development, and their developmental requirements are fairly comprehensive in almost all sectors, this initiative will provide relief to almost the entire spectrum of Indian industry. Every job directly retained in the formal sector (and not lost due to demonetisation) is likely to lead to many jobs retained in the informal sector.”

Infrastructure industry is one of the worst hit, and there are lots of large and medium-sized infrastructure projects

Since banks’ NPA problem persists, and there are no signs of the industry being in a position to invest and take credits from banks with reasonable assurance of servicing the debt, there can’t be a better alternative than lending to foreign Governments with Sovereign Guarantees. Africa will develop, with or without us. We should decide if we want to benefit from it.

Infrastructure industry is one of the worst hit, and there are lots of large and medium-sized infrastructure projects (like roads, low-cost housing, solar power, water treatment & distribution, etc), for the asking in Africa, which can be handled by large and medium companies from India.

There are also projects in mining, agriculture, fisheries, leather, hospitals, etc where Indian companies can collaborate with local African companies and export equipment and machinery, and technical know-how and management expertise, and participate in projects, where our investment of time and money can be secured through agreements with the Governments. If Indian Government shows interest, African Governments are quite willing. What is required is a proactive initiative and interest from the Indian Government.

Education, Skill development, Entrepreneurship development and employment generation using appropriate technology are some of the other areas where MSMEs from India can play a major role in developing Africa, and in the process, benefit India in the immediate term in the form of exports.

What is new in all this, one may ask. The percentage of Indian companies which have contacts in Africa is minuscule, compared to the potential. The Government should play the role of an active (rather than a passive) facilitator in making connections between Indian business & industry with its African counterparts.

Whether we believe Indian economy today is a crisis or not, what we have is a huge opportunity, with lots of money with our banks, which are unable to lend in the context of huge NPAs. With Sovereign Guarantee from foreign countries, they can lend through ExIm Bank of India to foreign Governments, and the money would come back to India in the form of export earnings. This will help Indian banks and industry which are in distress, and provide at least a small booster shot to our economy if not a big fillip.

Note:
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.

Ganesan Subramanian

An Engineer-entrepreneur and Africa Business Consultant, Ganesan has many suggestions for the Government and sees the need for the Govt to tap the ideas of its people to perform to its potential.

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