David Rasquinha, MD of Exim Bank, speaks with BW Businessworld’s Manish Kumar Jha on such issues and if there will be any credit fallout due to the lockdown of markets globally.

Amid pandemic, Exim Bank of India is navigating through the disruptions as the exports gains in some areas have been progressive. A joint analysis recently by the Exim Banks of India & Africa shows that commercial trade between Africa and India has expanded more than eight-fold from $7.2 billion in 2001 to $59.9 billion in 2017.  However, on the critical issue of importing active pharmaceutical ingredients, also known as bulk drugs, India depends on China for more than two-thirds of its bulk drug needs. David Rasquinha, MD of Exim Bank, speaks with BW Businessworld’s Manish Kumar Jha on such issues and if there will be any credit fallout due to the lockdown of markets globally.

Edited Excerpts:

The Export-Import (Exim) Bank is the principal export credit agency in India. What is your assessment of India’s export due to the adverse impact of the Covid-19? Will there be a credit fallout?
Softening the global economic growth due to the Covid-19 outbreak is likely to dampen the global trade. According to estimates by the World Trade Organisation (WTO), the slowdown in the global trade could be worse than the trade slump brought on by the global financial crisis of 2008-09. The exports from India would also not remain immune to the global headwinds. However, the ongoing nature of the pandemic makes it too early to ascertain the final impact, as it will depend on the extent and duration of recovery from the pandemic. On the positive side, we can certainly expect exports of pharmaceuticals and fine chemicals to do well. As regards to the credit fallout, all stakeholders in India are committed to ensure sound health of the financial system. A slew of measures have been taken by the Centre, the Reserve Bank of India as well as banks and financial institutions, to engender business continuity. These measures are expected to bode well for mitigating the adverse impact of the Covid-19 on the economy.
 
The Centre has set up ambitious defence export target, which has exponentially crossed Rs 11,000 crore last year. But, how will Exim bank extend the Line of Credit overseas vis a vis defence cooperation with already stressed asset, for example, in Africa? Could you elaborate the mechanism? How will the Exim bank facilitate defence export for private players in defence?
The Exim Bank is supporting and facilitating defence-related exports under its various flagship programmes. The Bank has extended several Line of Credit (LOCs) to partner countries for their defence-related procurements from India. A recent example is that of Bangladesh, where the Exim Bank extended a Government of India (GoI)-supported LOC of $500 million to Bangladesh for defence procurement. In the past, the Exim Bank has extended LOCs for defence procurements to Mauritius, Sri Lanka and Suriname. The LOCs are demand-driven, and the terms are favourable for partner countries to avoid debt traps or long-term dependency.

The Bank is also supporting defence exports under its Buyer’s Credit under NEIA (BC-NEIA) programme. For example, Exim Bank supported supply of two advance offshore patrol vessels to the Sri Lankan Navy by the Goa Shipyard  under BC-NEIA of $ 124.03 million to Sri Lanka .The Indian project exporter, under the BC-NEIA, is backed by a tailored financing package that meets the funding needs of the project, without impacting the balance sheet of the Indian project exporter. Consequently, while the Indian companies remain responsible for timely and satisfactory execution of the project, it is free from commercial and political risks while executing the project.
The offset policy of the GoI is boosting the capabilities of private companies in the defence sector. Going ahead, we expect to see more private companies leveraging the LOC and BC-NEIA programmess to bolster their presence in the defence exports.



Does the Covid - 19 disruption present an opportunity for the Indian industry to scale up across global supply chain and strengthen export outlook?
The Covid-19 outbreak and the consequent supply chain disruptions could certainly lead to a realignment of global production centres, amid the shifting epicentres of the outbreak, besides the changing investor sentiments looking at alternate locations for their investments. India could stand to benefit from risk mitigation measures taken by global corporates to avoid over-dependence on single country sourcing.

The recent measures announced by the GoI definitely position the country as an attractive destination for investments in the post-Covid-19 world. In the electronics sector, for example, the GoI has announced several measures to encourage investments and value chain linkages, such as the phased manufacturing programme for production of mobile and electric vehicles, the production linked incentive scheme for large scale electronics production, the scheme for promotion of manufacturing of electronic components and semiconductors, and the Modified Electronics Manufacturing Scheme.

In the pharmaceutical sector as well, the GoI has announced measures to boost domestic production of bulk drugs and drug intermediaries, which would not only help the country in attaining self-reliance and reduce import dependence, but also enable India to etch a higher share in the global supply of bulk drugs and intermediaries.

How do you look at the broader picture, amid the pandemic, in terms of the government spending on public expenditure and private ingenuity?
As the coronavirus grips the world in its talons, the only thing countries can do is trace and test, ramp up public expenditure on healthcare and social security, ask its citizens to stay at home, and hope for the best. Like other countries, the recipe for salvation in India remains broadly the same, albeit more exacting.

With numerous competing challenges and limited resources, India’s public expenditure on health is mere 1.28 per cent, as compared to the global average of 6.3 per cent. This is indeed worrying given the urgent need for healthcare infrastructure in the country. And let us not be mistaken—this need is not just to tide over the current crisis, but also for the perennially perilous and yet little addressed healthcare challenges in the country. To put things into perspective, India has nearly 2.8 million cases of tuberculosis annually, and something as trivial as diarrhoea is among the leading causes of childhood mortality in the country. Clearly, the healthcare challenge in India is not new, and undeniably urgent.

The juxtaposition of these realities with India’s capabilities is startling. India has a globally competitive pharmaceutical industry, relatively low-cost health services, and a budding technical textile (including Meditech) industry. A conscious, concerted and collective effort by the private and the public sector can help build a more resilient future for the country, in face of such health adversities.

What can be done to make our pharmaceutical industry self-reliant? 
India began its journey into the pharmaceutical industry in 1980s, with manufacturing of active pharmaceutical ingredients (APIs) and intermediates for exports into regulated markets. Over the last decades, there has been a significant shift in the dynamics, with Indian players moving up the value chain and focusing more on drug formulations. The higher margins derived from the exports of formulations have incentivised the players to focus more on formulations, as compared to the low-margin API/ bulk drugs business.

With greater focus on formulations, India’s import of bulk drugs and intermediates has increased, with nearly 66 per cent of India’s requirement of intermediate drugs being met through imports. China meets nearly two-third of the country’s import demand for bulk drugs and intermediates, with the US, Italy, Singapore, Hong Kong, Germany and France being the other major import sources. In case the pandemic continues to affect, India’s imports from China and other major import sources in the forthcoming months, production of pharma companies could be affected as the raw material stocks eventually deplete.  

The GoI has recently announced a scheme to promote setting up of Bulk Drugs Park in the country, in addition to a production-linked subsidy scheme for promoting domestic manufacturing of certain critical drug intermediaries. But these initiatives can help strengthen domestic capacities and reduce import dependence only in the long run. In the short- run, the government could focus on ensuring that a dedicated air freight capacity continues to operate on essential routes, so as to curtail supply chain disruptions and ensure flow of vital goods, including API and other drug intermediaries.

You raised a critical element of healthcare services in our country? The public spending on health by the Centre is one of the lowest in the world? What do you suggest?
It is encouraging to note that while public expenditure on healthcare has been relatively low, the private healthcare sector in India has grown at a phenomenal pace, placing India among the top destinations for medical tourism. However, growing private sector capacities may not be of any consequence to the poorest, marginalised groups of the country, unless the government pitches in.

As noted, public expenditure in India is fairly low as compared to the global average. Even in the pandemic situation, with an emergency financial package of Rs 15,000 crore, the public healthcare expenditure as percentage of GDP falls short of the global average. Going forward, an increase in public expenditure will be essential to ensure that the reigning healthcare difficulties do not turn into a debilitating menace. Also, more importantly, we would need innovative solutions in form of Public-Private Partnerships (PPP) to ensure that benefits of private sector ingenuity percolates to the masses. We have seen such PPP experiments in India before, such as the Yeshasvini Health Scheme in Karnataka, jointly initiated by Narayana Hrudayalaya and the Karnataka Government. We need a policy-driven strategy to scale up these experiments.

Another essential step for strengthening healthcare infrastructure would be promoting domestic production of high technology medical devices, through production-linked subsidies, capital subsidies or R&D subsidies. These will bode well for the healthcare sector, as also help narrow the trade deficit in the electronics segment.

What is the technical textiles for healthcare and the scope for India to scale up?
The technical textiles industry in India is a high technology sunrise sector. It includes segments such as Meditech, which refers to products employed in the hygiene and personal care sector, besides being used in the provision of healthcare services through surgical applications. The current pandemic highlights the need for bolstering this sector.

The sector is currently supported through a host of schemes, including the Augmented Technological Upgradation Fund Scheme. Enhancing the scope of existing schemes, reducing duties on critical raw materials for the industry, and encouraging FDI in the country as also joint ventures abroad, will be crucial for stepping up the manufacturing of these products.