Engineering exports halt, orders refused

KOLKATA: The rapidly appreciating rupee and non-intervention by the Reserve Bank of India (RBI) have almost brought engineering exports to a grinding halt.

So much so the Engineering Export Promotion Council (EEPC), the apex body of engineering exporters, has sent an SOS to the central bank seeking re-introduction of interest on Export Earners' Foreign Currency (EEFC) accounts to make it attractive for exporters to retain their realisations in foreign currency instead of converting it at current exchange rates. The strong rupee has eroded virtually the entire profit margins of export orders already executed.

Two-thirds of engineering exports from India are accounted by small and medium enterprises, or the so-called SMEs. EEPC data for April show no incremental orders were taken in April.

Sources said companies with existing orders are also sitting tight or delaying their execution because the billing rates are being affected.

Almost the entire engineering industry had stopped booking export orders since last month, with the rupee appreciating close to 8% and steel prices up 10%.

This has been a double whammy, wiping off hopes of any margins from exports.

Though export figures for April 2007 are yet to be compiled - May 15 is the last date for filing of data with Director General Commercial Intelligence & Services (DGCI&S), EEPC sources said that export growth for April 2007 would be in the negative compared with corresponding month of previous year.

It is learnt that a high level delegation of EEPC met RBI officials last week, seeking emergency intervention by the central bank to bring about stability of the rupee.

The export promotion council, by way of a short-term measure advocated re-introduction of interest on EEFC accounts, which would enable exporters to hold onto to export realisations in foreign currency and wait till such time the rupee stabilises before converting it.

Exporters argued that at current rupee-dollar exchange rate, conversion of realisations would entail huge losses on export order already executed since export margins, particularly to lucrative markets like US was seldom at margins higher than 8-10%,  a gap already bridged by the appreciating rupee. Rakesh Shah, chairman EEPC said, Compared with August 2006, the rupee has gained 14% and international business is seldom done at margins greater than 14%

"Exporters are shying away from executing orders they have in hand."

He said he has written to the Prime Minister's Office that a scenario like in 1991 is approaching.

That was when Indian exporters were seen as 'unreliable' globally.

"Exporters today will incur a loss in executing orders. If they default they will lose customers and reputation in international markets. It's time RBI intervened," Shah said.

"It is not that exporters want a dollar exchange rate of Rs 46 but there should be some stability," Shah said.

The EEPC reckons that by making the EEFC account more lucrative with interest accruing on deposits, anything around $20-30 billion could be mopped up thereby reducing the pressures of excess dollar in the market.

A leading eastern India based exporter of castings and forging said merchandise exports with high import content were better placed since a strong rupee could be countered by lowering costs of imports.

But contrary to this, the engineering sector has been the worst hit since  this 'import density' of engineering products was less than 10%, leaving little scope of taking benefit of lower import costs resulting from a strong rupee.

The Union commerce ministry has set an export target of $125 billion or a growth of 28% in current fiscal.

Engineering export accounts for about 21% of all merchandise exports from the country and in 2006-07, when total exports grew by 27%, engineering exports were up 35%.Hence overall targets are now threatened since engineering exports are unlikely to register growth anything compared with levels of previous year.