Project exports is a segment that has potential to grow big, and become a crucial sector contributing to India’s exports. However, if industry insiders are to be believed, the industry still awaits due recognition in country’s foreign trade policy (FTP). The Dollar Business catches up with Rajan Malhotra, Chairman, Project Exports Promotion Council (PEPC), to bring to light the challenges faced by the industry and to understand its significance in India’s exports.

Interview by Deepak Kumar | June 2016 Issue | The Dollar Business

TDB: What initiatives has the government taken to promote project exports? Has the policy been in line with the industry’s demands?

Rajan Malhotra (RM): Project exports (including construction exports) is a segment that none of the annexures or chapters in the Foreign Trade Policy (FTP) cover. The reason being, it neither falls under goods nor services. Likewise, the government doesn’t have any transactional record of the industry. So, whatever data is available with the government is a voluntary contribution from the companies that the Project Export Promotion Council (PEPC) has collected and submitted to them. The data comes in bits and pieces, and it makes the procedure for separately claiming credits or getting the data input at the Customs level cumbersome. With that said, the government has been fairly responsive whenever project exporters or construction companies have approached them. Also, the EXIM Bank and the Ministry of External Affairs (MEA) have recently come up with some revised guidelines for projects to avail a line of credit. Once the government gets sensitised to the large volumes that are being exported, the real issues can be sorted out.

TDB: Have the government and the industry ever sat together to discuss about bringing transparency to the industry’s data? If not, is there any plan?

RM: We were expecting a mention in the new FTP 2015-2020 because the Project Exports Promotion Council of India (PEPC) gave representations to the government. But as of today, there isn’t anything concrete. Well, project exports is included in the FTP, but foreign trade project exports do not fall under any schedule. Also, one of the sections talks about an incentive programme for project imports, but not for exports. So, we have taken up the issue with them again; we expect the DGFT to come up with a proper schedule in which exports can be classified and then decide on what incentives need to be given.

Most of our project exports are carried out in countries with whom our trade deficits are very high – we import oil from them, so what we traditionally export doesn’t bridge the trade deficit gap. Thus, it’s very important to give project exports its due place and importance in the FTP and roll out effective policies and encourage project exports.

TDB: What challenges does the Indian construction industry face when it comes to undertaking projects abroad?

RM: Project exports require transfer of workmen and, of course, machinery. But at the moment, the process of acquiring visas for workmen and the visa fee structure aren’t friendly in hosting countries. The same is true with transportation of machinery. The industry needs support from diplomatic missions to make the process easier. Another major challenge is the cost of finance, which is very high in India because of higher interest rates. Whereas, Chinese companies, which are major competitors for Indian exporters in project exports segment, have a very low cost of money because most of their infrastructure companies are government-owned. And depending on the strategic requirements, the Chinese government loans them money at differential rates. However, Indian companies pay about 10-12% interest rates, not to speak about other additional costs, making Indian exports less competitive.

TDB: Is there a lacuna in the policy?

RM: There is an interest subvention scheme floated by the Ministry of Commerce, but rather than project exports it leans more towards goods exports. There is also a committee that sits once in every two or three months to decide whether interest subvention is indeed needed. A lot of work needs to be done. However, nothing can happen unless the importance of project exports is realised.

TDB: What role does PEPC play when it comes to project and construction article exports from the country?

RM: PEPC tries to provide regulatory information to protect and promote exporters. It also interacts with the government to ensure that export benefits are enhanced and provided to the exporters.

TDB: What are the major destinations for India’s project exports?

RM: Most construction exports are carried out across the seven Gulf countries. However, it will take a while before Indian construction companies start to acquire something sizeable in the developed world. The eastern rim of Africa, starting from Kenya, Tanzania, South Africa and Mozambique to Malawi have come under the business radar. Chinese companies are established comfortably in these areas, but we have managed to pick contracts because of cultural reasons and, of course, acceptance of the Indian workforce. Project sizes are not large in Africa, but we expect things to improve soon. The next market is Sri Lanka because, at the moment, it is the single largest recipient of the EXIM Bank lines of credit. And, Bangladesh is another country where Indian companies are slowly gaining momentum. In other parts of South Asia, Thai and Malaysian companies are tough competitors.

TDB: Why can’t we get projects in developed countries? Is it because of a technological gap?

RM: Indian companies are as good as any other construction company in the world. For example, Delhi Airport, which is regarded as one of the best airports in the world, was completed in record time by L&T. The Mumbai Airport also shares a similar successful story. So, if we can deliver such quality projects, I think we can get work anywhere. And speaking of international projects, we have done it before; the easiest example we can pick is L&T, which has worked on projects like Doha Asian Games Village and Doha Metro. At the moment, the developed countries are going through an economic slowdown, and they don’t have funds to undertake large projects – infrastructure activity is low. The huge distance also adds pressure, creating mental barriers to travel far offshore. There are also non-tariff barriers and, of course, an EU country would like a contractor from EU, an obvious choice to support their economies.

TDB: In terms of extending advisory and support services to construction exporters, how efficient has the government been so far?

RM: Unfortunately, the government doesn’t have the expertise to either extend support or advice. There are times when the Indian companies lose out on business, and this is when we need experts in diplomatic missions and government panel who can protect the industry. They can speak for the industry and get us financial aid and contracts.

TDB: Do we really have a mechanism in place to promote our companies in foreign markets?

RM: There is a need for subject matter experts who can promote and protect the industry. The government needs to create a proper department that can provide right inputs. It’s the need of the hour.

TDB: What are your thoughts on the Make in India programme?

RM: For Make in India, we first need to Make India, i.e. develop infrastructures to facilitate investors to come forward and invest. Give them good roads, power, water and other facilities. Once that is done, we will see investments in manufacturing flow into India.