Set up in 1989, Electronics & Computer Software Export Promotion Council (ESC) is today India’s largest electronics and IT trade facilitation organisation with software exports from the country crossing $100-billion mark in FY2016. In an exclusive interaction with The Dollar Business, D. K. Sareen, Executive Director, ESC, sheds light on the EPC’s journey so far, discusses the lessons learnt and reveals the council’s plan to further boost exports from the sector.

Ahmad shariq Khan | August 2016 Issue | The Dollar Business

TDB: How have EPCs evolved with time? In the changing global landscape, do you think there is a need to periodically review and change ESC’s mandate so it can deal with changing business realities more effectively?

D. K. Sareen (DKS): In a changing world of trade flows, export promotion councils (EPCs) have their role earmarked. The strategies keep on changing from time to time, depending on the emerging situations and realities that are played out. Here I am limiting myself to IT exports, which is the focus of our council. When we had set up the council in the late 1980s, software export was unknown to most people in India. Our export volume was a few million dollars and it was limited to just US. Today, we export over $100 billion worth of software to several destinations across the globe. Ever since we started exporting software products and solutions, our strategies and thrust have changed – from low-end products and solutions we have moved to high-end products and complex solutions. Those changes are gradual and enduring.

In fact, Electronics & Computer Software Export Promotion Council (ESC) has been playing a pivotal role in scripting these changes among exporters. I agree, there has to be a constant change in our approach. And what I can assure you is that ESC is alive to this issue and holds consultations with stakeholders and experts to evolve innovative approaches for tapping newer markets, and also for consolidating the existing markets by moving up the value chain.

TDB: Please tell us about some of your recent endeavours aimed at helping exporters associated with ESC?

DKS: One of the biggest accomplishments for us in the recent times has been widening of the export base. Today, we have over 4,000 export units, of various sizes, in the country. However, to co-exist, an inclusive growth paradigm is important. There are also challenges in making the micro, small and medium enterprises (MSME) sector’s growth sustainable, and empowering each unit to move up the value chain.

Also, ESC has been playing an important role in broadening India’s export destinations base for products it deals in. In fact, we identify potential markets much in advance – for instance, markets like Africa, CIS, Latin America, Middle East, etc., were identified as potential markets long ago. We have been inviting hundreds of potential software buyers from these regions to participate in our signature annual event, ‘IndiaSoft – Exhibition & Conference’. The idea is to create a band of experts from these countries – experts who know the depth of Indian software industry, its strength and range; so that when these countries resort to large-scale digitisation, these experts can act as our brand ambassadors.
Our experience has been very satisfying as many of these countries have started importing software products and solutions from India, particularly from the MSME sector. Driven by the success of this experiment in software, we have started a similar exercise to promote India’s export of IT hardware. We have been holding expos for the hardware sector for the last two years, and the events have been quite successful, both in terms of participation and business deals.

We are also looking forward to tapping the growing Japanese market. In fact, ESC has been actively running a programme wherein we teach Japanese language and business etiquette to technical students in IITs and other premier institutions and the programme has been a great success. Apart form these initiatives, we participate in every important trade fair across the globe.
 
TDB: Do you feel services exports need a greater thrust from the government?

DKS: I am sure we can increase our services exports considerably and provide a cushion to the country’s soaring trade deficit arising due to widening merchandise trade deficit. There is a minimal foreign exchange outgo in the segment, in terms of equipment or raw material imports. Therefore, we should promote our services with greater emphasis.
Some of the promotional activities that we are currently contemplating involve expenditure. For instance, we feel that incubation centres in important markets such as US, UK, Germany, Japan, etc., can help us better tap opportunities in these countries, and this should benefit the MSME sector. Let me clarify about incubation centres – these are platforms to be set up in important centres in a country to which we have considerable software exports. These centres will serve as a common business support facility for our exporters, both in terms of marketing their product or following up with the overseas client.

The expenditure to be incurred can be shared among the participating companies and the government. The pilot incubation, which ESC implemented in US has been a success. To replicate the success in other countries, we need resources since participating companies alone cannot foot the entire bill. The Ministry of Commerce, which is the nodal Ministry for promoting exports, should come up with attractive packages to help implement these programmes.
 
TDB: What are the key challenges faced by the electronics and computer software export industry? And what steps are being taken by ESC to help the industry overcome those challenges?

DKS: Before responding to your question, let me first differentiate between electronics hardware and computer software exports. Different dynamics are at play in each segment. In electronics sector, many policy initiatives are required for us to emerge as an important export hub. While the software sector clocks an annual export turnover of over $100 billion, annual exports of IT hardware from India stands at just $7 billion. This number is quite insignificant despite the fact that exports from these two sectors can be traced back to the same time, which is the late 1980s.

The International Telecom Agreement (ITA) has not worked in our favour as import duties have come down to zero, spelling the death knell for the Indian electronics sector. And coupled with this is the inverted import duty structure where raw materials and intermediate goods command more duty than the finished goods. This anomaly has indirectly incentivised cheap imports of finished goods into the country. The government is now aware of the situation, but the damage has already been done. And it might take a while to reinvigorate the electronics sector in the country.

Apart from these challenges, Indian exporters of electronic goods are facing increasing threat from counterfeits. In many countries, locally produced low-quality products are labelled as Indian goods. And despite our best efforts to promote chips that are made in the country, as of now, it is a non-starter. We have to initiate urgent measures to tackle this because chips are essential for a booming electronic goods industry – as seen in the case of China, Japan and South Korea. The other concern is the frequent changes in the EXIM Policy of the government, which sometimes becomes counterproductive. What we should strive at is healthy dialogues between the policy makers and the industry before effecting changes in the policy framework. I am happy to say that ESC has initiated a process of consultations among the stakeholders.

Coming to software export, the challenges are a bit different. Since it is an industry based on human resources, most MSMEs find it difficult to comply with the loan requirements like collateral. The government is trying to address the issue through the ‘Start-Up’ programme, but such measures are too little and too late. We need to proactively finance and support software export units. One suggestion could be financing software units, which cannot give collateral, based on credit rating by an established agency. Also, tax incentives should be extended to all software export units, irrespective of their location.

TDB: Can you tell us a bit about your funding mechanism? Is the funding from the government enough for all activities that you need to pursue?

DKS: Electronics & Computer Software Export Promotion Council, like most other EPCs, does not receive any administrative support from the government. Our entire administrative budget is met from membership subscription and other internal resources. We are also one of the few EPCs that have built its own modern office premises without any support from the government. We will shortly start incubation facilities out of this ‘intelligent’ building and assist new start-ups in their export efforts. We do have a pretty active global outreach programme for our member companies.
 
TDB: Recently, some exporters have reported late and non-payment issues when dealing with some specific countries in Africa. Shortage of dollars seems to be a problem in these countries. Are exporters associated with ESC also facing any such issues?

DKS: It is always a challenge to operate in emerging markets, and Africa is no exception. We do issue advisories in commercially sensitive markets and request exporters to be cautious in countries facing liquidity problems.