Business Today

Nowhere to go

After five years of high growth, exports are in a slump leading to massive income and job losses. The situation will get worse before it gets better.

Rishi Joshi        Print Edition: February 22, 2009

G.K. Gupta thinks he will be lucky if the turnover of his export business, Vijay Silk House Group, falls by only 25 per cent in this financial year. That will give him a turnover of Rs 75 crore for the year ending March 2009—against Rs 100 crore in the last year and Rs 250 crore three years ago. Gupta anticipates the future to be worse than the present. That’s why having just completed his two-year turn at the helm of the Federation of Indian Export Organisations (FIEO), Gupta does not envy his successor. Battling with disappearing demand and falling margins, exporters are still able to cater to some of the pending orders—orders placed in the first half of 2008. These orders will get over by February and there is no knowing whether new orders will come in from March onwards.

G.K. Pillai, Commerce Secretary
G.K. Pillai
“…It’s the worst-ever situation for exporters since Independence. The big financial crisis and slowdown has also meant that many buyers are not in a position to pay for goods delivered,” says Gupta, citing the slowdown in the US, Europe, West Asia and Gulf. His other businesses, real estate and hospitality, despite being caught in the general downtrend, are doing better than exports.

He is not alone. First, the rupee appreciation in 2007 forced many small and medium exporters to fold up. This fiscal, when the rupee started depreciating and brought some smiles, poof! Whole markets are disappearing.

The worst-affected: textiles, handicrafts and engineering, all big contributors, all big employers. In October and November, overall merchandise exports showed a double-digit negative growth.

Says Prabir Sengupta, former Commerce Secretary: “We are highly dependent on external demand from the US and Europe… until demand picks up in these regions, exports won’t rev up.” In 2001, Sengupta had headed a core group that had chalked out a fiveyear export-growth strategy.

Exporters’ wish list
With demand worth billions of dollars disappearing and over a million jobs at stake, exporters think that the following can help.

  • Income-tax holiday for five years
  • Two-year moratorium for term loans
  • Reimburse state-level duties, which are not refunded
  • Enhance DEPB and duty drawback rates
  • Clear the backlog of government dues to exporters
As export markets vanish, so will jobs. FIEO reckons 2.5-3 million jobs would be lost this fiscal— and up to 10 million if the trend persists.

The turmoil has affected the small and medium enterprises the most—they account for almost 70 per cent of India’s exports.

The government is not holding out any hope, and will soon be adjusting the merchandise exports target of $200 billion set in April 2008 to $175-180 billion. This would translate into a growth of 10 per cent on the figure for 2008-09, against the 25 per cent target set in more optimistic times. And though a 10 per cent growth sounds decent, it hides the sudden plunge exports have taken starting October 2008 (see Why Things Will Get Worse). Says Commerce Secretary G.K. Pillai: “We will feel the impact even more in the next six months. We have not seen the worst yet.”

So, hemmed in from all sides, exporters are now looking to the government for succour. Says A. Sakthivel, the new President of FIEO: “Our demands must be considered favourably to avoid massive job losses across the country.” Valid as exporters’ demand for a bailout are, given that the big customers of Indian exports (importers in the West) are battling with job loss and loss of income and wealth, don’t expect government measures to make a big difference till the global economy revives. In the following pages, BT assesses the impact of the slump on the three worst-hit categories of exports.

Navratan Samdria, Chairman, India Exposition Mart
Navratan Samdria
Snapshot
Handicrafts
Carpets bombed
Total employment
7 million
Major markets US, Europe & Australia
Growth in Q3, 2008-09 -60%
Estimated job loss 500,000

With orders dwindling, many small handicraft exporters are being forced to wind up. And this in a sector that is the largest employer in the economy after agriculture and textiles. The Export Promotion Council for Handicrafts (EPCH) reckons exports have shrunk by 60 per cent in the April-December period.

So have jobs: At least 5 lakh gone across major product categories like houseware, home textiles, carpets and fashion jewellery. The worst-hit are segments like art metal ware and textile handicrafts with demand slump in key markets of Europe, US and Canada, which account for 70 per cent of India’s handicraft exports. Says Rakesh Kumar, Executive Director, EPCH: “The problem is that handicrafts are seen as non-necessity items and are first to be hit by an economic slowdown. In particular, the downturn in the housing market in US has taken a severe toll on handicraft exports.” Adds Navratan Samdria, a former president of the EPCH: “Most of the exporters are making losses and will find it difficult to survive.”

Samdria’s own company, Beauty Art India, an exporter of wooden handicrafts and imitation jewellery, has almost stopped production and laid off its entire team of 100 contract workers.

“We are just not getting any orders. There is no option for most exporters other than winding up operations,” says Samdria, who is also Chairman of the India Exposition Mart, which aims to be a one-stop shop for Indian cottage industry products by organising fairs and exhibitions in Greater Noida.

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