Crises in Sri Lanka, Nepal: Labour intensive exports to take a hit

The ongoing forex crisis in Nepal on top of the worst economic turmoil in Sri Lanka since 1948 has raised concerns of Indian exporters, who cut supplies to neighbors by 20% in FY23 from a year earlier. cast doubts. Improvements soon.

Exporters who spoke to FE said the decline in shipments to Sri Lanka could accelerate unless New Delhi provides a line of credit, in addition to the $2.4 billion it already provided since January to salvage the island nation. Doesn’t expand to newline.

New Delhi’s major exports to Colombo include petroleum products, pharmaceuticals, steel, textiles (mainly fabrics and yarns), food products and automobiles. Exports of many of these products to Sri Lanka are set to ease in FY23.

Similarly, given Nepal’s restrictions on imports of luxury goods and cars, auto and auto component supplies, which accounted for around 9% of New Delhi’s total exports to Kathmandu in FY12, are set to decline this fiscal. . However, the supply of petroleum products, which accounted for a quarter of India’s total exports to the Himalayan nation in FY12, is yet to be restricted.

The pandemic has battered their tourism sector, which has been a major revenue earner for them, with both Sri Lanka and Nepal seeing their fortunes.

While any potential decline in India’s exports to these countries can be easily offset, given the limited trade value, they, nevertheless, add to an array of external constraints for Indian exporters, notably Ukraine. In the wake of the massive supply-chain disruption crisis. Moreover, the crisis comes at a time when India is looking to build on its strong export performance in FY12.

An industrial resurgence in Western countries, which boosted demand for Indian goods in FY12, has been fueled by geopolitical tensions. As a result, the WTO has now lowered its global trade growth outlook for 2022 to 3% from the previously announced 4.7%.

The economic crisis has forced Sri Lankans to cut back on discretionary purchases, while Nepal has reportedly curbed “non-essential imports”. Together, these two countries imported goods worth $15 billion from India in FY2012, which is almost 50% more than the pandemic year of FY2011. In FY 2012, India was the largest exporter of goods to both Nepal and Sri Lanka.

Exporters said Nepal has banned opening of letters of credit (LCs) for auto and jewelery imports. For large number of products, if Nepalese importers want to open LC, they need to maintain 100% cash margin in their LC accounts; For the rest, they should have 50% margin. However, some essential food items are included in the list of products where 100% cash margin is required.

Ajay Sahai, director general and chief executive of apex exporters’ body FIEO, said, “It is not a hopeless situation for Nepal, but they are probably taking action against what is happening in neighboring (Sri Lanka) and before it is too late.” Because they are cautious.”

It cannot be denied that there could be some temporary setbacks for India in the short term, but a glimmer of hope is emerging on the horizon, Sahai said.

Sahai said, “Two factors that are positive for Sri Lanka and Nepal are that both are good destinations for tourism (which is on a revival mode) and many of their citizens are working abroad, who will mobilize remittances, Sai said.

“Sri Lanka is in a bad shape now, so it will take months if not years to be in a position to control the crisis. Our exports are definitely going to be affected,” said a leading agricultural exporter. Another exporter said: “A lot depends on further aid being discussed by India and Sri Lanka for a bailout package with the IMF.”

Sri Lanka is seeking an additional $2 billion in line of credit to deal with the crisis. India has provided $1.5 billion line of credit to it since January. These include $1 billion for imports of food, medicine and essential goods, and another $500 million for petroleum products. On top of these, India’s assistance also included a $400 million RBI currency swap and deferment of loan repayments of $500 million.

Nepal’s foreign exchange reserves have been depleting almost steadily in recent months (from $11.75 billion in July 2021 to $9.75 billion in February), prompting authorities to clamp down on “non-essential imports”.

As for Sri Lanka, its GDP shrank by a record 3.6% in 2020 and its foreign exchange reserves fell 70% over the past two years to about $2.31 billion by February, leading to a sharp depreciation of its currency. Meanwhile, its debt has grown to $51 billion.

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