Increasing global uncertainties may impact demand, India's exports FIEO’s Ajay Sahai

New Delhi: The escalating geopolitical tension may have implications for the country's exports in the first quarter of 2024-25 as it could impact global demand, apex exporters body FIEO said.

The global uncertainties caused by the continuing war between Russia and Ukraine have impacted India's outbound shipments in 2023-24, which recorded a decline of 3.11 per cent to $437 billion. Imports too dipped by over 8 per cent to $677.24 billion. "If the global situation continues to be like this, it will impact global demand. In the first quarter numbers, the demand slowdown may be visible," FIEO Director General Ajay Sahai said.

He added that despite all the challenges, freight rates are softening which could indicate that demand may be impacted in the times to come. He cautioned that further escalation of the current situation could have implications on world trade.

"Besides geopolitical uncertainties, high inflation and high-interest rates are also crucial reasons for demand slowdown," he said, adding certain advanced economies like Europe may witness more slowdown.

India's domestic currency depreciated only about 1.3 per cent during 2023-24 as against Chinese Yuan's 4.8 per cent; Thai Baht 6.3 per cent and Malaysian Ringgit's 7 per cent.

When asked about the impact of the Israel-Iran war, he said certain exporters from the engineering sector have stated that the demand for goods that are going to the UAE and then to Iran has reduced. Sahai also added that the demand for jewellery may also come down.

The director general suggested the government take certain steps to facilitate exporters on the liquidity front. "Due to demand slowdown, offtake of goods will be low so foreign buyers will also take a longer period to make payments. We require funds for a longer period. Exporters also need interest subvention support," Sahai said.

Sahai is in favour of the continuation of the interest equalisation scheme.

On December 8, 2023, the Union Cabinet approved an additional allocation of Rs 2,500 crore for the continuation of the scheme up to June 30. The scheme helps exporters from identified sectors and all MSME manufacturer exporters avail of rupee export credit at competitive rates when the global economy is facing headwinds.

Exporters get subsidies under the 'Interest Equalisation Scheme for pre- and post-shipment rupee export credit. "The rates should be enhanced to 3 per cent and 5 per cent," he said.

He added that technology and knowledge-based sectors like electronics, electricals, telecommunication, machinery, auto, pharma, medicine and diagnostics would help achieve one trillion dollar exports by 2030. "But we have a problem in labour-intensive sectors like apparel, footwear, and gems and jewellery as our market share is going down,' he said.