Lack of FTAs makes agri-exports uncompetitive globally

T S Ahluwalia, Convenor of Ports & Logistic Committee and President, NISA

T.S. Ahluwalia, President, Northern India Shipper Association: Leaving apart the Basmati rice, Thailand, Vietnam and some other countries have FTA with the EU for supplying rice, but we do not have any such FTA which puts us at a disadvantage.

Impact of COVID-19 on trade was at its peak in April. Three months down the lane how is the scenario now?

Let’s analyse the scenario from January onwards – the last quarter of the previous FY – we witnessed 5% drop in that quarter because of the lockdown in March end. Coming to this FY, in April there was a drop of about 60%, in May it was 35% and in June it was 12%. On cumulative basis for the calendar year it is almost 20% drop in the exports. The good thing is the decline has been arrested in June. The 12% drop in June shows that things are improving and in the coming months we expect exports to pick up further.

Certain products like food, agri-products, chemicals, pharma, iron ore, plastic and petroleum did well in the past quarter. The non-performers were carpets, handicrafts, jems & jewellery and garments. But these are the areas where most of the people are employed. The low demand in these sectors is a concern.

When do you expect this situation to improve?

Exports depend on the foreign markets which are beyond our control. Our challenge is to maintain the supply chain. Demand is catching up in certain markets but certain other markets are yet to pick up.

The last time when we spoke the transportation was disrupted badly, has it improved? How is the situation at the seaports?

When the road transport was paralysed, thanks to the railway, they have helped a lot in sustaining the supply chain. These were the times when no transport was available for bringing cargo from ports to the ICDs or factories and for sending the cargo from hinterland to the ports. Road transport is functioning about 50-70% because of the non-availability of truck drivers.

The congestion issues at the ports have been sorted out, even though there are still minor labour issues (about 10-15%). In the current scenario the ports are able to move the exports.

While you are more on the exports side, can you tell us something about the imports scenario?

On the imports front the challenge is basically from China and here we need to apply a calibrated approach. We import two types of products from China – general and essential categories. The essential imports cannot be stopped immediately. The boycott China sentiment sounds good to impact on the Chinese economy but we should not forget that China can also retaliate. If we shrink our imports from China by limiting them to only essential commodities then China may as well refuse to supply those.

Currently the imports from Hong Kong are on the rise. I always consider imports from Hong Kong as part of China which comes to about $85-90 billion. If we ban imports from China, they will be re-routed from Hong Kong, Vietnam, Thailand or some other countries as we have FTAs with them.

How is the performance of agri-commodities?

So far agri-export is doing well. In the past FY our export was $39 billion and we expect to maintain it this year as well. Agri sector performed well even during the lockdown period. We have an issue with the MSP. We are doubling the MSP to increase the income of the farmers which makes some of our products uncompetitive in the international market. Wheat, barley and millets that we were exporting 10 years down the line are not being exported any more. Even the rice export has increased recently, otherwise we were limited to the Basmati rice. But this approach is not correct holistically, I feel, to increase our GDP we depreciate our currency value from $75 to $40, so you become a $5 billion economy. To increase the MSP same formula is being applied to give more money to the farmers, but the situation is tricky, if you increase MSP you will not be able to export and will have to subsidise it.

But recently we have been competing with Vietnam in rice exports. Could you detail on that aspect?

Leaving apart the Basmati rice, Thailand, Vietnam and some other countries have FTA with the EU for supplying rice, but we do not have any such FTA which puts us at a disadvantage. At the current MSP our rice is out-priced in the international market.

How is the cash flow situation for you?

Cash flow was not good 2 months back but it has improved now. Revenues have started to come in from foreign markets. The only issue is that bankers are not supporting smaller exporters. Whatever governments had announced about issue of working capital is not reaching the smaller businesses. The bankers apprehension is also justified as the funding they offer to SMEs will not increase their business, the money will be used for paying salaries, taxes etc and will not contribute to increasing their turnover or profit.

It has been reported that about 1200 exporters including some star exporters have misused the GST. Is this because of COVID-19 or is it a regular phenomenon?

Let’s go back to the period when GST was announced. There was a system by which you load your sales by 10th of the month, by 15th you get sales of the orders loaded and on 20th of the month you pay the difference of the tax. So the difference in tax you have paid and the taxable goods you have received was to be paid by you. The system is very simple but when initiated it was not checking the input credits, it was allowing exporter credits to those who were demanding, so certain exporters have used this aspect in their favour. About 97% of the exporters are genuine and the names that are reported in media, if we get any reports from the government then definitely my federation will take a serious action against them.

What are the lessons learnt during COVID-19?

We all know the losses incurred due to utility bills and shortage of labour, but how much inputs does a business require in terms of labour? I have seen people achieving same efficiency with just 70% of the labour. People are now attracted towards automation and AI, so the crisis has pushed people to increase their efficiencies, but on the contrary the requirement of labour is decreasing, so the labour unemployment issue remains, but surely the efficiencies of the businesses have increased.