Strip out oil, and manufacturing exports doing better
Given that India’s exports have fallen for the 8th consecutive month, it is easy to believe the bottom has fallen out of the market, either because the rupee has become too strong—in even trade-weighted nominal terms, the rupee has appreciated over the last one year—or because the global economy continues to be weak, or because India is quickly losing its competitiveness. While exports first contracted 3.8% in December last year, this deceleration picked up and exports fell a mammoth 21.7% in May before stabilising a bit, to a contraction of 10.3% in July 2015. This, however, is missing the wood for the trees since it does not take into account the collapse in commodity prices. Petroleum products, for instance, comprise 13% of India’s exports and, over the last one year—July 2015 versus July 2014—the global prices of crude oil have fallen 47%.
Given that India’s exports of petroleum products fell 43%, this suggests there was some volume growth, albeit a marginal one. Strip out just oil exports, and India’s exports contraction in the July 2015 versus July 2014 period were a much lower 1.7%. Once you take into account other commodities, including agriculture ones, exports growth is probably positive. On a seasonally-adjusted basis, according to Nomura, exports grew 4.8% month-on-month in July, up from 1% in June. In the case of gems and jewellery, despite the 16% fall in value of gold, exports managed to rise 4.9% in July 2015. Engineering exports rose 0.83%, pharmaceuticals a smart 10.9% and readymade garments 6.5%.
While it is not clear if the latest fall in the value of the rupee against the dollar will help, it remains true that India’s exports are more responsive to an increase in global income than they are to a depreciation of the rupee. To that extent, the news is not good. The minutes of the last Fed meeting say ‘almost all members (of the Federal Open Market Committee) indicating that they would need to see more evidence that economic growth was sufficiently strong and labor markets conditions had firmed enough for them to feel reasonably confident that inflation would return to the Committee’s longer-run objective over the medium term’. With Chinese PMI in August falling to 47.1, a six-and-a-half-year low, it is obvious growth in China is not recovering in a hurry; both Europe and Japan continue to be sluggish. The good news in all of this is that, while exports continue to remain poor, imports are also low—estimates are that the CAD will be within 1.5% of GDP for the year, a number that is easily financed from the likely capital flows. Any export benefits the government may give will help, but there is no reason for unbridled pessimism given the sluggish global situation.