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Coronavirus impact: Exports worth $25 billion cancelled in two months; local authorities remain a roadblock

The stubbornness of the authorities has impacted exports. Factory owners feel the future of their business is at stake as overseas buyers cancel orders

twitter-logoJoe C Mathew | June 19, 2020 | Updated 10:00 IST
Coronavirus impact: Exports worth $25 billion cancelled in two months; local authorities remain a roadblock
NSEZ, which exports Rs 9,000 crore worth of goods each year and employs over 50,000 people, has all the facilities that qualify its units to be operational, but UP state administration feels otherwise

KEY HIGHLIGHTS

  • $25 billion worth of export orders have been cancelled in two months
  • $4 billion worth of apparel exports at stake due to lockdown
  • Local administration not allowing permission for factories to operate despite govt order
  • Production has completely stopped since last month; jobs are at stake
  • Total order cancellations across all export sectors range between 50 to 60 percent

"We are facing a big, big, big, problem", says Vilas Gupta, Managing Director of Taurus Englobe Ltd, a company functioning from the Noida Special Economic Zone (NSEZ). Gupta is not talking about his company alone. None of the 262 manufacturing units in NSEZ, except 15 that are producing essential items like medical goods, are allowed to function, despite the central government issuing clear instructions to permit operations in access-controlled zones like SEZs with requisite safety precautions and up to 50 percent employee strength.

The NSEZ, which exports Rs 9,000 crore worth of goods each year and employs over 50,000 people, has all the facilities that qualify its units to be operational, but UP state administration feels otherwise.

"There is a housing society about 1.5 kms away from the NSEZ where there are some corona positive patients. Citing this, the administration is not allowing permission to operate the units saying we are within a containment zone. But they have not closed other neighbourhood societies," says Gupta, who is also regional chairman of the Export Promotion Council of EoUs and SEZs.

The stubbornness of the authorities has impacted exports. Factory owners feel the future of their business is at stake as overseas buyers cancel orders. "The shipments that are ready can't be exported till local administration allows them to start the operation. Even the shipments that are at finishing stage may get damaged as they are lying open. This may put the factories under heavy losses. Business owners feel if the factories are not allowed to operate immediately, they will have to reduce staff and workers, which will lead to vast unemployment", Gupta says. The shutdown, if it continues, may also see overseas buyers placing orders with Chinese companies where factories are in full operation.

The plight of NSEZ is not an aberration. A Shaktivel, chairman of Apparel Exports Promotion Council, says over $4 billion (Rs 30,000 crore) worth of apparel exports are at stake. Apparel exports are facing huge demand problem as overseas buyers are not buying since malls, stores in Europe and US are shut.

"Production has completely stopped since last month. Even though central government allows partial functioning, no government has given permission for us to start operations," Shaktivel says. According to him, even salaries to employees will be a problem if there is no production and orders for a long time.

Ajay Sahai, director general and CEO of Federation of Indian Export Organisations (FIEO), says total order cancellations across all export sectors range between 50 to 60 percent, while for sectors such as apparel, leather (footwear), handicraft and carpets, it is over 80 percent. "In just two months, roughly $25 billion worth of export orders have been cancelled", Sahai says.

The mass cancellations of orders due to demand slump in key markets is not only impacting the viability of Indian exporters, it is also casting doubts over the ability of fresh orders too. "With all the bankruptcy filings going on, the financial soundness of the buyer is in question. We are asking companies to take insurance cover for all orders," Sahai said.

Even companies prefer not to operate in full capacity due to order cancellations. The government decision to permit operations with 50 per cent employee strength is thus a blessing in disguise, provided, it gets implemented at the ground level. With various government agencies scuttling their plans to re-start production, India's export sector is hoping to see an early withdrawal of lockdown and resumption of normal business activities.

If that happens soon, some of the cancelled orders may come back, or else, even with all the talk of Make in India, the country might be giving away the export competence.

Also read: 1,000 foreign firms mull production in India, 300 actively pursue plan as 'Exit China' mantra grows

Also read: Lockdown 2.0 bleeds travel, aviation; manufacturing, agriculture plan hesitant comebacks

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