An industry expert explains the significance of Project exports to India's growth agenda.
Project is an engineering venture or mission: a scheme of development work to be executed by employing the best technologies, continuous innovation and resources - human, financial and physical to create a capital asset. As technology advances, projects tend to move up in sector size as well as technological sophistication in the value-chain.
Project Exports, in essence, connotes setting up of projects overseas as construction and/or engineering projects. It could also involve the export of engineering consultancy or other engineering services as desired by the project owner. In simple terms, export of engineering goods/services on deferred payment terms which lead to execution of turnkey projects including civil construction works abroad are collectively referred to as Project Exports.The possibilities of project exports from any country in general are determined by the state of its economic and technological advancement on one hand, and on-going global development on the other. Hence, Project exports are aptly regarded as a key-indicator of the technical maturity and industrial capabilities of a country and have occupied an important place in India's export portfolio.
SIGNIFICANCE OF Project Exports
Project exports not only earn foreign exchange for the country, but also provide an opportunity to the industry in providing additional avenues of growth and employment. Besides, Project exports act as a catalyst for technological maturity and advancement of Indian construction and engineering companies. They indicate growing technological sophistication of Indian exports giving visibility to the Indian technical expertise and project execution capability in overseas markets and thus boost the economy in manifold ways including generating project revenues, creation of secured markets for goods and services, import of new technology and training of personnel, employment creation during project construction and operation phases and leading to earning/repatriation of foreign exchange. Since the realizations from overseas projects are spread over a longer term period they provide regular flow of foreign exchange and help absorb fluctuations in foreign exchange due to outflows.
India has been actively involved in project exports, with many Indian companies making a name internationally in the project exports market. Satisfactory performance, in terms of cost effectiveness, application of technical expertise and timely delivery of quality products and services have earned Indian project exporters a fair degree of goodwill and standing.Besides, project exports carry the following essential advantages in the present context of liberalization and globalization and hence new strategic initiatives should be regularly taken to promote project exports:
Opportunity to export a set of goods and services bundled within project exports thereby opening avenues for export of these goods and services on standalone basis in future thus giving a fillip to other ancillary industries also
Establish strategic presence in a regioncountry.
Project Exports can be used as effective tool to maintain trade balance owing to capital intensive nature of the projects.
Support funding provided by the banking system is of self-liquidating nature over a period of time.
Project exports provide employment opportunities to trained/skilled manpower.
Provides exposure to state-of-the-art construction technologies to both industry and Indian manpower being employed.
Past and present performance of Project ExportsProject Exports from India began in early 1970s and the prime market for the Project Exports during this period was Middle East with major orders from Iraq, Iran and Libya. As Iraq took up large-scale national development from the early 1970s, unlike other oil-rich countries, the Iraqi government awarded a large number of contracts to Indian companies, as a result, by the end of the 1970s, Indian companies had won over 50 projects, covering areas such as water supply and sewerage schemes; roads, bridges and flyovers; technical and business management education; railways, and prestigious construction projects such as the Council of Ministers building.This trend of awarding major projects to Indian companies continued through the 1980s in spite of the Iran-Iraq war. At its peak, the Indian community in Iraq, almost entirely made up of engineers, labour and technicians working for Indian and other projects, numbered around 50,000. Indians also played an important role as experts in almost every government department, particularly in the petroleum, railways, finance, planning and civil construction institutions.
The onset of Iraq-Iran war in 1980 and steady decline in oil revenue of these countries, project exports from India diversified to other developing countries including Malaysia, Singapore, Sri Lanka, Nigeria, Indonesia, Thailand, UAE and Kenya. Since Indian companies successfully executed civil construction and industrial projects in various disciplines, India's capability of undertaking all kinds of engineering and infrastructure projects was firmly established during this period. However, the period had its own share of challenges. Even though DPA (deferred payment agreement) was signed by the Indian and Iraqi governments in 1983 to help Iraq in payments for imports from India due to the economic crisis there following the prolonged Iran-Iraq war, the Indian Project Exporters also had to go through the ordeal of seeing their receivables from Iraq for project exports struck for a long time. As per the DPA agreement, the Indian government undertook to guarantee deferred payments to Indian project exporters to Iraq, while the latter paid the Indian government in staggered installments. The bond issue of 1995 started showing effect in 97-98
The reduction of home loan rates in 2001 during NDA government resulted in a huge demand for quality real estate all over the country post 2003. After March 2005, Indian real estate rates displayed a seemingly unstoppable upward curve. The companies in housing sector focused majority of their resources on the domestic market to make the most out of this realty boom. High GDP growth also brought the focus on huge infrastructure requirement for sustainable growth and as the Indian Government announced its developmental plans in infrastructure sector, Project Exporters from other sectors like power, transport, water also focused on domestic market. However, Project Exports from India did maintain its upward curve from 2005-2008.The financial crisis of 2008 disrupted this curve and the growth of Project Exports remained flat during the years 2008-2011. Project Exports touched a low of Rs. 10,110 crores in 2012-13 a period marked by extreme cash crunch for Indian Infrastructure sector. The housing sector remained focused on domestic market during this period. The cash crunch prompted Indian infrastructure companies to look beyond domestic markets for diversification and financial consolidation, reflected by sharp rebound in Project Exports 2012 to 2014.
The performance of Project EPC member companies over the last three decades have been depicted through graphs representing overseas projects secured by them during a financial year in Figures 1 to 3.
Project Exports Performance in year 2015-16 and 2016-17
The primary market for Indian Project Exports i.e. Middle-East witnessed slowdown in Project awards and execution due to drop in commodity prices during this period. PEPC in consultation with its member companies took initiative to provide more comprehensive information on Project opportunities in alternative markets to facilitate diversification to alternative markets like Africa, SAARC and CLMV region undertaken by its member companies.
PEPC member companies reported projects in new countries such as Swaziland, Sierra Leone, Seychelles, Russia, Poland, Pakistan, Mauritania, Mali, Honduras, Guinea, Gambia, Cameroon in F.Y. 2016-17. Project Exports touched record high of Rs. 54024 crores primarily aided by enhanced number of companies reporting overseas contracts secured and market diversification into new CountriesRegions.
Policy Interventions for enhancing Project Exports from India
PEPC has been making representations to the Government for necessary policy intervention to address the following issues identified after consultations with Project Exporters:
Collation of Project Exports data: Data on Project Exports is not being compiled by DGCI&S due to absence of definition of project exports in FTP and other provisions in procedural framework. DGFT had organized meetings with stakeholders to address the issue and industry is hopeful that necessary provisions and inclusions would be made after the mid-term review of the FTP which would enable collation of data. Project Exports data would be key in addressing the following issues:
Identify goods and services utilized in overseas projects and help identify inputs not currently being sourced from India thereby enhancing the Indian content.
Segregation of goods component in Project Exports would help in claiming SEIS & MEIS benefits thereby encouraging more companies to explore overseas markets.
The Project Exports identifier would help segregate other Mode-3 services from Project Exports and allow exemption from SEIS clause that disqualifies companies with commercial presence overseas to claim benefits under the scheme
Help establish a mechanism to claim export benefits on 10-15% value held back for performance guarantee.
Interest Equalisation: Since Project Exports are extremely capital intensive therefore in order to effectively compete with contractors from US, Europe and China interest equalization would provide much needed support necessary for significantly enhancing Project Exports from India. The multiplier effect of Project Exports would provide rich returns on the funds employed for the purpose.
Diplomatic support: Given the economic and strategic value attached with Project Exports coupled with the fact that major execution of Project Exports is done on the foreign soil, the respective Governments of contractors from major competing nations provide a robust diplomatic support at various stages. Establishing a mechanism to lend necessary support to Indian companies in the sector is also highly desirable.
Infrastructure projects enabling connectivity across continents and countries have assumed great strategic and economic significance. Recently, the Government of India has launched a vision document for Asia-Africa Growth Corridor (AAGC). The initiative is a joint vision of Honorable Prime Minister Shri Narendra Modi and his Japanese counterpart. Vision aims for Indo-Japanese collaboration to develop quality infrastructure in Africa, complemented by digital connectivity. Additionally, the US has revived two major infrastructure projects in South and Southeast Asia in which India would be a vital player.A conducive policy framework for Project Exports would help Indian companies to actively participate in such projects also and help the Indian economy accrue the desired benefits from such initiatives of Indian Government.
Sandip Baran Das is Senior Vice-President at the Project Exports Promotion Council of India (PEPC).