India: Lockdown in China may hurt engineering exports further
Latest stay-home orders in China under its widely criticized zero-covid policy have set alarm bells ringing for India’s engineering goods exports, which are already showing signs of stress over falling demand from western countries.
Outbound shipments of engineering goods to China alone plunged by 70% in August 2022 to $173.7 million compared to $619.5 million in the same period last year. A prolonged lockdown in China is expected to hurt exports further, experts said, adding that overall exports of engineering goods have already declined 12.64% in August and 17% in September.
“Engineering exports to China have really gone down sharply, and it does not look like it will recover anytime soon,” Engineering Export Promotion Council (EEPC) of India chairman Arun Kumar Garodia said. “The whole year has been difficult in the China market. The embassy, as well as the ministry, has been trying to extend support, but China is difficult at the moment. So far, it does not seem that China has created a trade barrier. Demand has gone down in China. It could also be possible that they have begun manufacturing some of the orders themselves. The government is considering removing the duty on steel which will help India regain a lot of the market that it had lost,” Garodia said in an interview.
Mint had reported that the Union government could scrap the duty on steel exports in the next year’s Union budget as steel inventories have risen on the back of lukewarm local demand. The government had hiked the duty on exports of iron ore by up to 50% and for a few steel intermediaries to 15% in May.
Garodia added that China is one of the top five significant destinations for Indian merchandise as well as engineering exports, and any downturn in economic activities there will have a significant adverse impact on India’s shipments.
The EEPC chief, however, added that financial problems in China could also open up opportunities for the Indian manufacturing sector. Citing the example of Brazil, Garodia said that India is among the top 15 suppliers of auto parts to Brazil, with a share of around 2.7%, while China’s share is 12.8%.
Exports of automobiles to Brazil during the first five months of the current fiscal grew 43.6% and offered a huge opportunity for the engineering sector, considering the Latin American country is one of the most prominent automotive markets in the world, Garodia added. “Frankly speaking, we are not ready to fill the gap left by China at the moment. Indian manufacturing does not have the scale at the moment. Production-linked incentives are brought to build capacity, but it is for large manufacturers, not the MSMEs. Other policies are framed for MSMEs, and it will take some time before we are ready to grab the opportunity,” said Mahesh K. Desai, founder of Meera Group, a Hyderabad-based engineering firm. Desai added that engineering exports have been on the higher side but have begun contracting as large markets in Europe face an energy crisis.