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Pharma could be a balm for India’s bruised exports

Shipping lines experienced a hit because of the pandemic, while the grounding of airlines has halted the transfer of even urgent and less bulky goodsPremium
Shipping lines experienced a hit because of the pandemic, while the grounding of airlines has halted the transfer of even urgent and less bulky goods

Indian exporters find themselves in a state of turmoil because of the covid-19 pandemic. Cancellations or requests for withholding stocks have started to become the norm. Most manufacturing activity has also come to a halt. Mint takes a look at the situation.

What hardships are exporters facing?

The export industry has had an increasing number of requests from buyers to hold back shipments or cancel them. Factories function on a fixed cost basis and at the moment they are left with labourers, who have no work. Delays in clearances of import containers have resulted in more expenses for exporters. Shipping lines experienced a hit because of the pandemic, while the grounding of airlines has halted the transfer of even urgent and less bulky goods. Warehouse capacity seems to have been overstretched for many and access to credit is a major problem for most exporters.

What about India’s export destinations?

Lockdowns imposed to check the spread of covid-19 have completely halted cargo movements in export destinations. The top three export destinations for India’s engineering products—the US, the UAE and Germany—are either in a state of lockdown or under strict restrictions. These engineering products form a big share of the country’s export basket. As a major tea exporting country, India’s top export destinations such as the US, the UK, Japan and Iran are battling the havoc caused by covid-19 that might severely hit demand in these countries. Drop in crude oil prices could further bring down the value of Indian exports.

Graphic: Paras Jain/Mint
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Graphic: Paras Jain/Mint

In what situation is the force majeure clause invoked?

Force majeure refers to events beyond anyone’s control such as hurricanes, avalanches and earthquakes. This clause removes the liability for the party invoking it. Not all contracts include words such as pandemic and quarantine, putting them in a grey area. It is likely that many foreign companies will invoke it, as some local ones have done, to delay their payments.

Has the Centre taken any relief measures?

The Centre has extended the foreign trade policy (FTP) to 31 March 2021. It seeks to create a favourable environment for Indian exports in terms of potential and performance. Under it, relevant businesses enjoy tax benefits, marketing assistance, duty-free imports and the possibility of earning cashable scrips against exports of identified items. FTP’s extension was one of the major requests of the export industry. An online government platform for issuing key documents has been designed to facilitate shipments.

Can any sector benefit from the covid crisis?

India can emerge as an alternative to China for the manufacture of cost-efficient and quality products. India accounts for 10% of global pharmaceutical production by volume, but only 1.5% by value. The discrepancy highlights the relatively low prices but high demand for Indian pharma items globally. With the world taking note of India’s recent export of antimalarial drugs to the US, the industry can develop as a major exporter of affordable drugs.

Jhoomar Mehta is a Delhi-based development finance consultant.

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