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Exports likely to be hamstrung as Covid’s onslaught continues

05 August 20225 mins read by Angel One
Exports likely to be hamstrung as Covid’s onslaught continues
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The scourge of the second wave of Covid-19 keeps buffering not only the everyday lives of millions of Indians but is also increasingly threatening the economic resilience of India’s export sector.

Demand stemming from US & UK

Compounding matters further for India Inc is that the second wave that has hit India at a time when European and US economies are drawing out plans for a gradual re-opening. The US, for instance, has set itself on a warpath to inoculate 70% of its citizens by August 4th, its Independence Day. The UK government under the leadership of Prime Minister Boris Johnson has successfully piloted a vaccination programme that has dispensed close to 50 million inoculations.

As these economies open up, India’s exporters have been under tremendous pressure to step up their production capacities. However, their efforts to step up production are hamstrung, thanks to several restrictions that have been put in effect by many state governments. While complete and absolute lockdowns in India have been placed intermittently and only on weekends, the restrictions have worked to drastically scale down the manufacturing activity across segments in India’s exports hub.

Domains like textiles, automobiles, garments and steel are reeling under the burden of these almost-lockdowns, and international buyers are increasingly becoming jittery if Indian exporters will be able to honour their commitments.

Garments & steel sector face the brunt

Business leaders have indicated that if the decline is not arrested soon, we could start seeing orders from developed economies shifting from India to neighbouring countries. In the garments sector, Pakistan is already undercutting India. European buyers are progressively becoming insecure about domestic producers’ ability to meet the set targets on account of labour issues and blocked deliveries from India. Consequently, some European customers have transferred export orders of made-up goods like bedsheets and towels to Pakistan.

The cornering of the made-up goods orders by Pakistan hurts Indian workers as well given that this particular sub-segment is the second largest employer within the textile sector. Over the course of the last few years, India’s exporting might in the textile sector has incrementally been chipped away at by countries like Vietnam, Cambodia and Bangladesh. Reportedly, US and UK clients have also started placing orders with China without cancelling orders placed with Indian exporters. However, supply chain disruptions are still a significant risk and the status quo can possibly turn against India if the restrictions aren’t lifted soon.

Other exporters indicate that even when access to labour is secured, many more obstacles such as procuring raw materials and efficiently managing logistical chains during a lockdown doggedly persist.

After garments, steel is another sector that is also facing heat. India is the world’s fourteenth largest steel exporter and currently exports steel to more than 200 countries and regions. The advent of the second wave has pushed India’s rickety medical infrastructure into a corner and instances of death due to oxygen depletion are being seen far too frequently.  On the directions of the central government, steel producing units have started diverting their facilities to produce medical oxygen in its bid to assist the country in its fight against the pandemic. Naturally, this diversion has delivered a setback to steel production in the country.

As of last month, the domestic steel sector was delivering over 3,000 tonnes of oxygen for medical use. Experts have opined that the stocked inventories of steel will start depleting soon if local units do not resume manufacturing soon. They also said that exports will likely be dented in June.

A silver lining in the dark cloud

However, not all is gloom and doom. Preliminary data released by the ministry of commerce and industry indicates that India’s merchandise exports have trebled to $30.21 billion in April this year compared to a lockdown paralysed economy in 2020. This serves as adequate evidence that Indian manufacturing units are quite capable of resuming productivity at full steam once the restrictions are lifted. Additionally, the government has also pressed the pedal to the floor when it comes to vaccinations and is simultaneously working on a war footing in terms of handing out large government stimulus which should help revive dormant business activity in the economy.

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