A sharp rise in demand, spending recovery in import markets and a low base effect will likely see engineering exports – crucial to the country's export revival – power on in the near future.
Rising for the sixth straight month, exports posted a 17.48 per cent year-on-year growth in February, the highest in more than five years. Apart from petroleum exports, this sudden spike was fuelled majorly by engineering goods, whose exports rose by more than 47 per cent in February, compared to a 11.89 per cent rise in January.
The contribution of engineering goods to India’s total exports was 10.2 per cent in February, up from just 2.7 per cent in January 2017. If one were to exclude engineering goods, the exports growth would be only 9.3 per cent in February, according to the State Bank of India (SBI) research team headed by group chief economic advisor Soumya Kanti Ghosh.
The footprint of the sector on overall exports also continues to remain large. Total engineering goods exports stood at more than $57 billion in the first 11 months of the current financial year, whereas cumulative exports reached $239 billion.
With the country yet to reach the government's informal target of cumulative exports of $260 billion, all eyes are on the sector, a senior government official said under conditions of anonymity.
The broad-based sector includes a huge range of goods, including metal products, industrial machinery and equipment, auto and its components, and transport equipment, among others. "Of these, low-end items such as machine tools and auto components are expected to hold their own," said Engineering Exports Promotion Council (EEPC) Executive Director Bhaskar Sarkar.
"But the latest rise was led essentially by steel exports, which is not sustainable in the long term. International prices will correct themselves and we are nowhere near the production levels of China," he added.
Also worrisome is the spectre of an impending manufacturing slump in the sector owing to medium and small manufacturers being cut off from necessary working capital due to demonetisation. Such units make up almost 40 per cent of the sector. According to industry sources, almost five months after demonetisation was announced, they have not recovered to pre-demonetisation levels of production.
This might put up up a sudden challenge in front of exporters who have seen an influx in new orders from major markets in recent months.
A significant spending recovery in major destination markets for the sector, such as the United States as well as the UK, France, Italy and the Netherlands in Europe, is expected to continue to bulk up order books, EEPC had said earlier.