Bangladesh Unrest Hits Engineering Shipments to India

Syllabus:GS2/IR GS3/Economy

Context

• According to the Engineering Export Promotion Council of India (EEPC), India’s engineering goods exports to Bangladesh have faced a significant challenge due to the recent unrest in the neighbouring country.

India’s Engineering Export performance

• Accounting for 3% of the total GDP, the Indian engineering sector forms a crucial backbone of the Indian economy.
• The engineering sector is the largest contributor to India’s overall exports with a share of 24% and also contributes approximately 40% of the total manufacturing export.
• Engineering exports in fiscal 2023-24 grew by 2.13% and reached at US $109.32 billion, which is contrary to the merchandise export trend which declined by 3.11%.
• It performed well given the weak global trade trends, dwindling demand, forex crisis and geopolitical conflicts.

• Today, out of total engineering exports, the proportion of consumer durables decreased from 34% in 1956-57 to 9% in 2023-24, while the proportion of capital goods increased considerably from 12% in 1956-57 to 60% in 2023-24.

Export Destinations

• India exports engineering products to the following regions: ASEAN, North-East Asia, Africa, EU, North America, CIS, Latin America, South Asia, Africa, Middle East, West Asia, etc.

• India’s engineering exports continued their year-on-year growth for the second consecutive month into January 2024 with a 4.20% increase that was attributed to increased shipments of Iron & Steel, Aircrafts, spacecraft and parts, Copper and copper products, and Electric machinery.
  • Additionally, heightened demand from South Asia, the European Union, and North America contributed to this growth.

Concerns after recent turmoil in Bangladesh

• Export Decline: In the first four months of the year, India’s engineering goods exports to Bangladesh declined by 9%.
  • It has raised concerns for an industry that constitutes a quarter of India’s merchandise exports.
• Supply Chain Disruptions: The ongoing unrest in Bangladesh disrupted supply chains, affecting the smooth flow of goods between the two countries.
  • As a result, Indian exporters faced difficulties in shipping engineering products to their Bangladeshi counterparts.
• Revenue Losses and Uncertainty: The situation has raised the spectre of revenue losses for Indian exporters. With engineering goods being a crucial part of India’s export portfolio, any disruption can have far-reaching consequences.
• Specific Export Categories: While overall engineering goods exports from India had risen by 4.2% between April and July, there was a sharp 31.6% dip in exports of iron and steel.
  • Additionally, several of the sector’s top export markets—including Italy, Korea, Nepal, and Bangladesh—showed reduced appetite for Indian goods during this period.
• Offsetting Factors: Despite the decline in exports to Bangladesh, there were positive trends elsewhere. Exports to the United Arab Emirates (UAE) saw an almost 44% spike, and shipments to Saudi Arabia increased by 33%.
  • These two countries together imported $4.4 billion worth of Indian engineering goods, second only to the $6.1 billion exported to the United States.
• Global Impact: The unrest in Bangladesh has not only affected Indian exporters but also caused substantial losses for exporters worldwide.
  • The violence and protests disrupted imports, creating challenges for businesses across borders.

Government Initiatives

• In 2019, the government announced an investment of Rs. 100 lakh crore (US$ 1.5 trillion) in infrastructure development over the next five years.
• In the Interim Union Budget 2024-25, the government greatly pushed the infrastructure sector by allocating Rs. 11,11,111 crore (US$ 133 billion) to enhance the transport infrastructure.
• The government of India has implemented various export promotion schemes, such as the Zero Duty Export Promotion Capital Goods (EPCG) scheme, Towns of Export Excellence (TEE), Market Access Initiative (MAI), etc aiming at encouraging the exporter and to help increase the revenue from international markets. 
• Schemes such as duty exemption, advance authorization, duty-free import, rebate on service tax, etc. have been implemented to ease raw material imports.
• India has taken several initiatives to support and enhance the competitiveness of the domestic engineering goods manufacturing firms such as the ‘Make in India’ initiative, PLI scheme for Automobile, and Auto components, PLI scheme for National Programme on Advanced chemistry cell (ACC) Battery Storage, FAME INDIA II scheme, Capital Goods Scheme, Industry 4.0.

Conclusion

• The recent turmoil in Bangladesh has had tangible effects on India’s engineering exports, emphasising the importance of stable trade relations between the two nations. As the situation evolves, exporters will need to adapt and find ways to mitigate disruptions in supply chains.

Source: TH