India’s WTO-compliant FTP will be crucial
The Indian export sector is likely to witness a sharper recovery curve September-October onwards, which could be further strengthened by the holiday season in western countries in the following months, according to a California’s Drip Capital analysis released on 12 August 2020.
The third in a three-part series, Drip Capital’s working paper said that improvements in the June export numbers are definitely early signs of recovery in the economy.
However, analysis of publicly available trade data and global economic trends in the last few months indicates this is likely a result of the fulfillment of delayed orders piled up due to the lockdown in India, starting late March.
Commenting on the current state of India’s exports, Drip Capital Founder and Co-CEO Pushkar Mukewar believes the June figures signal that the disruption in India’s supply chain is gradually being rectified.
“However, the actual effect of this will likely be seen only towards the last quarter of the year, once the country’s trade returns to a semblance of normalcy,” he said.
Additionally, India’s falling imports also indicate weak domestic demand, and that the country’s value-added production and manufacturing sectors, such as engineering goods, are yet to pick up pace despite the small recovery in exports.
“This slower-than-expected manufacturing recovery could cause Indian exports to slightly dip again before resuming growth, leading to a W-shaped recovery,” Mukewar said.
Indian exports have been hovering around the US$300 billion marks for over a decade now. In the wake of the COVID-19 pandemic, Drip Capital expects the sector to remain in the US$225-$275 billion range in 2020, optimistically speaking, and hence, there is an urgent call for government intervention to achieve sustainable recovery.
The upcoming new Foreign Trade Policy (FTP) will be crucial to strengthen the export sector in the coming months and support medium, small and micro enterprises (MSMEs) that contribute almost 45-50% of the country’s exports and 30% of the GDP.
The Indian government’s new Atma Nirbhar Bharat movement indicates a focused push towards building self-reliance in domestic manufacturing and supply chain. To support this, India also needs a comprehensive World Trade Organization-compliant FTP that helps increase exports while moving away from subsidies.
Access to credit has been one of the major challenges for the exporting community and the liquidity crisis has only made it worse. Industry stakeholders need to reimagine financing solutions and solve the liquidity crunch within the export sector.
There is also an urgent need to ramp up technology up-gradation and labor upskilling in the export sector. Mirroring the success of the Technology Upgradation Fund Scheme (TUFS) of the textile sector could offer the way forward for up-gradation in other export segments too.
Additionally, the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) has proven its potential to help upskill India’s workforce. Integrating more export-oriented provisions under the scheme could provide a significant boost of highly skilled labor to India’s export sectors, enabling the creation of more globally competitive products.
Drip Capital Inc. is a global financial technology company, backed by Accel, Sequoia, Wing VC and Y-Combinator. It offers unique and innovative trade financing solutions to solve working capital problems among small and medium-sized traders in emerging markets like India and Mexico and developed markets like the US.
The financing solutions are collateral-free and offered through a completely digital process. To apply for Drip’s offering, complete a quick online application with minimal paperwork. The company uses electronic data and an automated risk assessment platform, thereby ensuring a quick turnaround. fiinews.com
