Problems Faced by Bank in Export Financing in India - PDF - PDF by qkd48819

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                I        O E
                        S M GENEFiAL PROBLEMS FACED BY INDIAN EXPORTERS




10.1.          Introduction

                    While s e v e r a l problems p e r t a i n i n g t o I n d i a t s
export of both commodities and p r o j e c t s / s e r v i c e s abroad have
been discussed along with t h e i r p o s s i b l e remedies a t appro-
p r i a t e p l a c e s i n preceding c h a p t e r s , some more general
problems f a c e d by I n d i a n e x p o r t e r s which need t o be given
urgent a t t e n t i o n have been discussed i n t h i s c h a p t e r . These
i n c l u d e u n d e r - u t i l i s a t i o n o f c a p a c i t y i n Indian i n d u s t r i e s ,
h i g h c o s t of production and low p r o d u c t i v i t y , h i g h shipping
f r e i g h t r a t e s and n o n a v a i l a b i l i t y of shipping space etc.,
inadequate banking s e r v i c e s f o r export business i n I n d i a ,
s c a r c i t i e s of e s s e n t i a l raw m a t e r i a l s and o t h e r necessary
i n p u t s and many o t h e r r e l a t e d problems.


10.2.          Under-ut i l i s a t i o n of Capacity i n I n d i a n
               Engineehng Industry

                    It has at t i m e s been argued i n I n d i a t h a t i n o r d e r
t o g e n e r a t e export s u r p l u s e s ( p a r t i c u l a r l y i n engineering
i n d u s t r y ) expansion of production c a p a c i t y i s a must.                   In
t h i s c o n t e x t , one of t h e most g l a r i n g paradoxes which comes
t o l i g h t is t h e p e r s i s t e n t phenomonon of massive i d l e
c a p a c i t i e s which have remained untapped f o r g e n e r a t i o n of
export s u r p l u s e s .     Thus, not t h e l a c k of c a p a c i t y but i d l e
c a p a c i t y h a s been t h e c h a l l e n g e t o engineering e x p o r t e r s i n
India[67,851.          A r e p o r t g i v i n g d e t a i l e d s t a t i s t i o a l etudy o f
200 t o p manufacturers e x p o r t e r s i n I n d i a c o v e r i n g a wide
range of p r o d u c t s revealed [ 6 7 j an a b s o l u t e l y low l e v e l o f
export production d e s p i t e l a r g e chunks of u n u t i l i s e d c a p e c i t y
during 1975-76.              However, t h e e x p o r t s of t h e first 100 units
averaged only 9 percent o f t h e i r production and of t h e next
100 u n i t s a mero 1 percent o f t h e i r production.                      The study
a l s o showed t h a t u n u t i l i s e d c a p a c i t y ranged from 20 p e r c e n t
t o 70 percent i n t h e s e u n i t s .         An a n a l y s i s [85J of t h e world
export of engineering goods i n 1973 and t h e countrywiee
import requirements of s p e c i f i e d p r o d u c t s via-a+-vis                India's
s h a r e t h e r e i n showed t h o p a t h e t i c a l l y low c o n t r i b u t i o n of
I n d i a n e x p o r t s even i n s e c t o r a with p e r s i s t e n t oapacity under-
utilisation.          For i n s t a n c e , with u n d e r - u t i l i s e d c a p a c i t y of
over 30 p e r c e n t , t h e wire rope i n d u s t r y had a mere 0.25
p e r c e n t s h a r e of t h e world market, t h e n estimated a s $ 282
million [67J.           The b a s i c conclusions of t h e study remain
unchanged even today.               Though t h e r e has been o v e r a l l             improve-
ment i n c a p a c i t y u t i l i s a t i o n , t h e r e a r e q u i t e a number o f
u n i t s even i n p u b l i c s e c t o r undertakings i n I n d i a i n t h e key
s e c t o r s i n which c a p a c i t y u t i l i s a t i o n i n 1974-75 was below
50 p e r c e n t .     Such u n i t s r e p o r t e d t o e x i s t p e r t a i n t o m i n e r a l s
and m e t a l s , chemical f e r t i l i s e r s , heavy engineering, medium
and l i g h t engineering and consumer goods i n d u s t r i e s [ 8 5 ~ .

                     Needless t o say, h a r n e s s i n g of t h i s c a p a c i t y f o r
e x p o r t s should be a m a t t e r of prime concern of all involved
i n t h e export e f f o r t .          o
                                       N r u l e of thumb can be p r e s c r i b e d i n
t h i s r e s p e c t , but i t goes without sagring t h a t i f t h e massive
u n d e r - u t i l i s e d c a p a c i t i e s can be more e f f e c t i v e l y deployed i n
t h e world markets, I n d i a ' s engineering exports would sKy
r o c k e t w i t h i n a s h o r t span.
                     It i s imperative t h a t necessary measures should be
i n i t i a t e d without f u r t h e r delay t o c r e a t e c o n d i t i o n s f o r
industry's f u l l capacity u t i l i s a t i o n .              Such measures would
l e a d t o all-round s a l u t a r y e f f e c t s , i n c l u d i n g c o s t r e d u c t i o n
consequent on t h e economies of s c a l e , g e n e r a t i o n o f f u r t h e r
employment i n t h e i n d u s t r y and above a l l , i n c r e a s e i n exports.
                     It w i l l be b e n e f i c i a l t o t h e I n d i a n economy i f
e s t i m a t e s about t h e u n d e r - u t i l i s a t i o n and u n u t i l i s e d indus-
trial c a p a c i t i e s a v a i l a b l e i n t h e I n d i a n i n d u s t r i e s a r e
obtained and d e t a i l e d planning i s made t o t a k e t h e f u l l e s t
advantage of t h e s e i d l e resources.                   I t i s g e n e r a l l y found
t h a t t h e f a c t o r s responsible for the l a r g e scale unutilised
c a p a c i t y r e l a t e t o inadequate supply of raw m a t e r i a l s o r l a c k
of demand f o r t h e products manufactured by such cancerns.
The sources of t h e raw m a t e r i a l s , whose supply falls s h o r t
f o r such unlts, should be l o c a t e d , and t h e s e u n i t s should be
given due a s s i s t a n c e by t h e Government t o over come such
problems.         E f f o r t s should be made t o l i s t all such u n i t s where
u n u t i l i s e d c a p a c i t y e x i s t a, only because of inadequate supply
of raw m a t e r i a l s .     These units should be given p r i o r i t y i n
supply of m a t e r i a l s and, i f p o s s i b l e , they should be provided
due impetus and f a c i l i t i e s t o o b t a i n t h e supply, wherever
necessary, through imports.


10.3.         High Cost of Product i o n

                  Another c r u c i a l problem faced by I n d i a n industries
e s p e c i a l l y t h e c a p i t a l goods i n d u s t r y , r e l a t e s t o t h e h i g h
c o a t of production and lower q r o d u c t i v i t y .               This has been due
t o a number of reasons, e.g.,                   inadequate supply of raw
m a t e r i a l s , high c o s t o f e s s e n t i a l s e r v i c e s l i k e water, e l e c t r i -
c i t y and t r a n s p o r t , r i s e i n manufacturing c o s t and marketing
c o s t and s e v e r a l o t h e r f a c t o r s t h a t c o n t r i b u t e l a r g e l y t o t h e
i n c r e a s e of t h e o v e r a l l   c o s t of our end-products[6                ,89J.
I n a d d i t i o n t o t h i s , t h e i n d u s t r i a l u n i t s have t o f a c e a
s e v e r e burden o f t a x a t i o n and t h e adverse f a c t o r s a r i s i n g on
account of low o v e r a l l p r o d u c t i v i t y , and h i g h c o s t of financ-
ing.      The p r i c e o f t h e end-product i s a l s o a f f e c t e d on account
of t h e l o n g g e s t a t i o n period.         The o t h e r r e l a t e d f a c t o r s t h a t
a f f e c t t h e c o s t of pasduction o f t h e i n d u s t r i e s a r e o v e r a l l
l a c k of motivation, l a c k of co-ordination i n managerial
departments and absence o f proper manpower planning.                                        .
                     The world of e x p o r t s i s a highly c o m p e t i t i v e
a r e a with t h e d o c t r i n e of s u r v i v a l of t h e f i t t e s t r e i g n i n g
supreme       [12j.      The need, t h e r e f o r e , i s t o i n i t i a t e a syste-
matic e f f o r t a t c o s t r e d u c t i o n and h i g h e r p r o d u c t i v i t y
t o g e t h e r with t h e programme of c a p a c i t y u t i l i s a t i o n .           The
i n d u s t r y h a s t o r e a l i s e t h a t without such a progrsmme, it
cannot a c q u i r e t h e i n t r i n s i c s t r e n g t h which i s so necessary
t o compete i n i n t e r n a t i o n a l markets.           And without such b a s i c
s t r e n g t h , no export e f f o r t c a n e v e r become s e l f - s u s t a i n i n g .
Equally important i n such an e x e r c i s e i s t h e need f o r a
programme of modernisation of p l a n t and equipment through
s o f t loans.       If t h e i n d u s t r y cannot keep i t s e l f a b r e a s t with
t h e l a t e s t p r o c e s s and production technology, it can n e i t h e r
reduce c o s t s i n t h e domestic market nor compete i n f o r e i g n
markets.


10.4.         High Shipping F r e i g h t Rates and Non-availability
              of Shipping Space

                  Shipping c o n t i n u e s t o be a major b o t t l e n e c k i n t h e
engineering i n d u s t r y s export e f f o r t s .            The problems a r e :
( a ) non-availability o f s a i l i n g s t o several ports;                       (b)
i r r e g u l a r i t y of s a i l i n g s o r f r e q u e n t changes i n s h i p p i n g
schedules ; ( c ) h i g h f r e i g h t r a t e s       -    t h e f r e i g h t [ 9 2 j on many
e n g i n e e r i n g items i s as high as 40 p e r c e n t o f t h e f.o.b.price;
( d ) p o r t c o n g e s t i o n i n markets of g r e a t e s t p o t e n t i a l and

i n a b i l i t y o:f I n d i a n s h i p s t o g e t p r i o r i t y b e r t h i n g ; ( e ) in-
adequate i n f r a s t r u c t u r e i n I n d i a n p o r t s such a s f a c i l i t i e s
f o r handling very l a r g e l o a d s , low p r o d u c t i v i t y e t c .
                  The competitiyeness o f t h e goods i s a l s o determined
by t h e s h i p p i n g i n d u s t r y of a country.            The r a i s i n g of f r e i g h t
r a t e s by shipping l i n e s h a s worsened I n d i a ' s s o r r y p l i g h t on
t h e export f r o n t .       A s a r e s u l t of t h e s e f r e i g h t - h i k e s I n d i a ' s

c o m p e t i t i v e c a p a c i t y i s being p a r a l y s e d i n t h e f o r e i g n
markets.        Shipping f r e i g h t s a r e i n c r e a s e d by developed
c o u n t r i e s every n o w and t h e n without g i v i n g due c o n s i d e r a t i o n s
t o t h e i n t e r e s t s of t h e developing c o u n t r i e s .           The shipping
f r e i g h t s , it i s s a i d , a r e 10pportunity-oriented i n s t e a d of
being cost-oriented.1               There i s no denying t h e f a c t t h a t p o r t
charges, f u e l p r i c e s have gone up, but t h e s i t u a t i o n i s being
e x p l o i t e d by t h e shipping l i n e s i 6 j .        T h i s f a c t h a s been
admitted by t h e I n d i a n Government t h a t both s h i p p i n g and p o r t -
p l a n n i n g have not y e t been s u f f i c i e n t l y encouraged f o r t h e
development of f o r e i g n t r a d e .        '   Although I n d i a occupies second
l a r g e s t s h i p p i n g c a p a c i t y , and i s second only t o Japan i n
Asian shipping, t h e growth of I n d i a n s h i p p i n g h a s been steady
but r a t h e r slow.         Shipping s e r v i c e s from I n d i a t o many of t h e
developing c o u n t r i e s have n o t been developed i n a manner
commensurate with I n d i a ' s export t r a d e .                  I n t h i s connection
t h e example of Japan i s o u t s t a n d i n g [ 6 J .              It i s n o t i c e d t h a t
Japan e x p o r t s t o many of t h e developing c o u n t r i e s and
i n v a r i a b l y t h e i r cargoes a r e c a r r i e d by h e r n a t i o n a l f l e e t ,
i r r e s p e c t i v e of t h e s i z e of cargo, o r t h e smallness of t h e
port.      Therefore, i t i s suggested t h a t Indian shipping l i n e s
should t a k e advantage of new concepts of shipping, such as
c o n t a i n e r i s a t i o n which would reduce handling time and c o s t s
and i n c r e a s e t h e competitive edge of Indian products.
S h i l a x l y , I n d i e should a l s o t r y t o switch over t o RORO
(roll-on-roll-off ) system l i k e h e r competitors ( e . g.,                         USA,
Japan, UK etc. ) i n p l a c e of LASH shipping system which
a t t r a c t s considerable f r e i g h t surcharge thereby rendering
Indian exports incompetitive.                    Promotional f r e i g h t r a t e s o r
f r e i g h t s u b s i d i e s a r e imperative, on a s e l e c t i v e basis, t o
enable Indian exporters t o capture markets p a r t i c u l a r l y i n
t h e developed countries.                A s pointed out e a r l i e r i n s e c t i o n

8.11, I n d i a has introduced new s a i l i n g s and increased
frequencies i n c e r t a i n areas, b u t a g r o a t e r sustained e f f o r t
i s c a l l e d f o r i n order t o succeed i n her export e f f o r t s i n a
b i g way.



10.5.          Inadequate Banking Services f o r Export Business

                  Banking s e r v i c e s f o r export business a r e q u i t e
inadequate i n I n d i a [6,48,49].                Thorefore, i n c r e a s i n g t h e
f i n a n c i a l i n f r a s t r u c t u r e f o r increased export e f f o r t has
become a must.            The c r e d i t given by commercial banks does
not adequately meet t h e present requirements.                             Indian
engineering exporters a r e i n no p o s i t i o n t o match t h e deferred
payment c r e d i t s offered by t h e developed o o u n t r i e s t o over-
s e a s buyers.       There have been s e v e r a l i n s t a n c e s where
s u b s t a n t i a l o r d e r s were l o s t by I n d i a n e x p o r t e r s simply
because of t h e i r f a i l u r e t o back t h e o t h e r w i s e oompetitive
b i d s by matching c r e d i t f a c i l i t i e s o f f e r e d by t h e i r compe-

titors.       Por t h e export o f s o p h i s t i c a t e d engineering goods,
Western c o u n t r i e s and Japan provide s u b s t a n t i a l c r e d i t s on a
long-term b a s i s with low i n t e r e s t r a t e s with a view t o
c a p t u r i n g t h e export market o n a l o n g term basis.                    Even though
I n d i a cannot compete with t h o s e developed c o u n t r i e s i n such
l o n g term aid/Loans, t h e s e t t i n g up o f t h e Export-Import B a n k
i n I n d i a ( a s already r e f e r r e d i n s e c t i o n 8.11) would of f e e t
one of t h e major handicaps, which r e s t r a i n e d t h e growth of
I n d i a ' s e x p o r t s t o many West A s i a n c o u n t r i e s , namely t h e
i n a b i l i t y o f I n d i a n e x p o r t e r s t o supply goods on d e f e r r e d
payment b a s i s .       T h i s bank would be wholly devoted t o t h e
financi-        of f o r e i g n t r a d e t r a n s a c t i o n s , without being t i e d
t o t h e n e c e s s i t y t o g i v c advances t o o t h e r p r i o r i t y s e c t o r s
of a c t i v i t y , decided upon by t h e government from time t o time.
T h i s bank would be i n a p o s i t i o n t o conduct e f f e c t i v e l y
t e c h n i c a l o p e r a t i o n s l i k e f i n a n c i n g of imports, e x p o r t s ,
export promotion and d i v o r s i f i c a t ion, conduct of on-the-spot
f a c t u a l surveys, f o r e i g n exchange budgeting and planning
f o r e i g n currency o p e r a t i o n s on t h e b a s i s of a continuous
study of t h e t e c h n i q u e s employed by o t h e r f o r e i g n banks i n
overseas markets, r a i s i n g of funds i n t r a d i t i o n a l markets,
f i n a n c i n g s h i p p i n g t o n m g e , c o n t r o l l i n g and r e g u l a t i n g
f o r e i g n exchange seepage, p r o v i s i o n of expert advice t o
e x p o r t e r s and i m p o r t e r s on all t e c h n i c a l a s p e c t s of f o r e i g n
t r a d e o p e r a t i o n s , m a i n t a M n g of e v e r - l a s t i n g c o n t a c t s i n
i n t e r n a t i o n a l monetary c i r c l e s and promotion of tourism and
e a r n i n g s through i n v i s i b l e s .      Thus, it w i l l be p o s s i b l e f o r
t h i s s p e c i a l i s e d bank t o meet t h e d i v e r s i f i e d requirements
of I n d i a ' s f o r e i g n t r a d e s e c t o r .    This c e n t r a l i s e d i n s t i -
t u t i o n , w i l l no doubt f i n d it f e a s i b l e t o c o o r d i n a t e i t s
a c t i v i t i e s with a l l t h e export promotional agencies and t h e
Reserve Bank of I n d i a , with a s t r o n g base and t e c h n i c a l
expertise.


10.6.           S c a r c i t y of E s s e n t i a l Raw M a t e r i a l s and Other
                Necessary I n p u t s

                   I n d i a n e x p o r t e r s have t o f a c e a grave problem i n
r e g a r d t o r e g u l a r supply of e s s e n t i a l raw m a t e r i a l s and o t h e r
necessary i n p u t s a s t h e r e a r e very r i g i d c o n t r o l s on t h e
import of s e v e r a l i t e m s i n t h e country.                   This r e s u l t s i n a
l a r g e i d l e c a p a c i t y i n t h e i n d u s t r i a l u n i t s [ 6 7 ~ . It h a s
o f t e n been suggested t h a t t h e Government should e s t a b l i s h a
Raw M a t e r i a l Bank which may launch a massive programme o f
import of t h e r e q u i r e d e s s e n t i a l i t e m s such a s s t a i n l e s s
s t e e l , non-ferrous m e t a l s and t h e l i k e commodities.                          The
p r i c e s of t h e s e imported m a t e r i a l s should be so determined
t h a t s u f f i c i e n t i n c e n t i v e may be provided t o t h e indigenous
                                                                                        1%


manufacturers.            Thus continuous e f f o r t s a r e neoeesary t o make
t i m e l y a v a i l a b i l i t y of raw m a t e r i a l s f o r an u n i n t e r r u p t e d
flow of production.                I n t h e p a s t , t h i s has been a major
b o t t l e n e c k and as st a t ed e a r l i e r , t h i n g s have improved
r e c e n t l y , due t o l i b e r a l i s a t i o n i n import of r a w m a t e r i a l s
f o r exports [66,87j.
                  It i s high t i m e t h a t e l 1 t h e s e d e f i c i e n c i e s a r e
carefully corrected.                 Although some e f f o r t h a s been done,
but a l o t more remains t o be done i f I n d i a i s aiming a t
d e r i v i n g optimum r e s u l t s from h e r comparative advantages.
Given t h e complexity of modern i n t e r n a t i o n a l t r a d e , new
problems a r e bound t o s u r f a c e a s t h e e x i s t i n g ones a r e
resolved.         Therefore, it i s necessary t o review t h e s i t u a t i o n
continuously i n o r d e r t o l o c a t e the emerging new problems
from time t o time and f i n d t h e r e s o l u t i o n s immediately.
K.C.    Maheshwari, Chairman EEPC h a s r i g h t l y observed                          And it
should always be remembered t h a t time i s , amongst o t h e r s , one
of t h e c o u n t r y ' s s c a r c e resources.           Unless I n d i a a c t s s p e e d i l y
o t h e r s w i l l edge h e r out from t h e export markets of t h e world.
I n i n t e r n a t i o n a l t r a d e no markets can ever be t a k e n f o r
granted.         The underdeveloped c o u n t r i e s of today would be
I n d i a ' s c o m p e t i t o r s tomorrowI1 [ 6 6 ] .     Hence, t h e need f o r
concerted and prompt a c t i o n .

								
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