Oct 1, 2003|
India Inc.: Exports exposure
While the world is apprehensive about the possibility of sustained and significant growth in the developed economies of the world like the US, EU, Germany and Japan, at the same time, it is confident of a strong growth in some East Asian countries, which includes China and India. Various agencies, independent and government, have projected a growth rate in excess of 7% for China and over 6% for India. While the domestic growth scenario for India looks encouraging over the long-term and though a major chunk of India Inc.'s revenues are a factor of domestic sales, it is important that one should take into consideration the exports scenario also. This is the next big opportunity for Indian companies.
Services exports have been playing a major role in the total export growth from India, especially software services. In this article, however, we concentrate on the manufacturing sector. If one looks at the trend of total exports as a percentage of sales (chart above), it has improved over the last 7 years. The contribution of exports to the topline of the manufacturing sector companies has improved from 8% in FY96 to 11% in FY02. While this may not seem much, it must be noted that the contribution hovered around the 8%-9% levels during FY96-00, it was in FY01 and FY02 that the contribution improved. It must be noted here that sectors like textiles, steel, aluminium, machinery and auto ancillaries have been at the forefront in contributing to the exports growth.
Apart from the fact that Indian companies have been eyeing exports in order to assist their current growth, there has been some developments on the international arena as well that has augured well for Indian companies. With increasing uncertainties over the sustainability of the current growth in the world's most developed economies, global companies are increasingly looking at Indian shores for outsourcing their work to reduce costs. Indian companies, being able to offer their expertise at relatively lesser costs than their international counterparts, are in a position to capture greater international business.
Though the above chart indicates the numbers upto FY02, below are a few examples observed in the recent past that indicate the strength of Indian exports, which has continued in FY03 also:
The exports of auto ancillary companies increased by 40% in FY03. This should be viewed in the backdrop of the fact that major auto companies are looking at sourcing auto parts from India due to the cost competitiveness and quality of Indian components.
Steel exports from India registered a growth of 37% in FY03, as not only did Indian companies target international products but the China import factor also had a major role to play. In fact, the trend has continued into FY04, with steel exports increasing by over 40% in the first quarter of the current fiscal.
While textile exports, which currently have the largest share in India's total exports, continue to grow, the dismantling of the quota regime in 2005 would further open up immense opportunities for Indian garment exporters. Moreover, international garment majors looking at reducing costs would increasingly target India for their requirements.
The above were just a few examples, which highlights India's growing participation in international trade. However, this is not enough! India's share in global trade currently stands at 0.8% (0.6% at the end of FY02), which is very small compared to the country's size. Keeping this in mind, in its Tenth Plan (2002-07), the government had set a target of achieving a 1% share in global trade, which it seems will be achieved sooner than planned. In 2002, India's exports grew by about 15%, which is second only to China (20%+). It must be noted here that India is also targeting China for exports in a big way. In FY03, India surpassed the US$ 50 billion mark and the Tenth Plan (by 2007) is targeted at achieving exports earnings of about US$ 80 billion!
However, there are some short-term concerns also, which could affect Indian exports. The biggest in recent times has been the strengthening of the rupee, which is a cause for worry for exporters, as their competitiveness gets affected in the international markets. Secondly, certain factors like the end of the quota regime in 2005 could put pressure on Indian exports, as only the cost competitive players would survive in the international markets. As we mentioned above these are only short-term concerns. We would like to point out that, despite the appreciating Rupee Indian exports rose significantly in FY03, indicating the rising cost competitiveness of corporate India. The key here to ensure that this cost competitiveness is maintained at the same time ensuring that the quality of Indian exports is comparable to the best across the globe.
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