India’s September 2016 exports has shown sign of revival registering a growth of 4.62 per cent on year on year basis. Imports fell 2.54% and trade deficit fell 18.01% Exports, Imports and the trade deficit for September 2016 were valued at USD 22.88 billion, USD 31.22 billion and USD 8.33 billion respectively. In the April-September 2016 period, exports fell 1.74% to USD 131.4 billion, imports fell 13.77% to USD 174.44 billion and trade deficit fell 60.07% to USD 43 billion. During September 2016 Oil imports rise by 3.13 % to USD 6.88 billion while non oil imports fell -4.04% to USD 24.33 billion when compared with corresponding period last year. Gold imports fell 54% in the April-September period.
The question is, will India’s trade see a turnaround in fiscal 2016-17, after a weak year last fiscal? Optimism on the world economy is still low though there are hopes of economies coming out of slumps on Central Bank stimulus, Table 1. June 2016 export growth is positive but it remains to be seen if it can continue going forward.
India’s exports and imports figures for 2015-16 reflect the depressed economic scenario globally and in the country. India’s exports contracted 15.57% to 262,031 USD Million in FY 2015-16 from 310,338 USD Million in 2014-2015, while imports contracted 15.04% to 380,665 USD Million in FY 2015-16 from 448,033 USD Million in FY 2014-15. Table 2
From FY 2014-15 to FY 2015-16, India’s exports and imports have fallen sharply. The main reason for lower exports is the global slowdown and the adverse effect of fall in crude oil prices, which has affected the USD earnings from our exports of refined petroleum products like diesel and petrol.
The relative appreciation of the INR against the USD vis-à-vis other currencies like the Rouble, Real and Yuan, and slow growth in world trade are other factors affecting India’s exports. Table 3
A huge part of Indian exports works in a way where exporters of Indian goods have to import the raw material that is processed further, value added and then exported. For Example, Reliance, which is India’s largest petroleum refiner, imports crude oil, refines the oil and exports it.
Given that the demand for petroleum products was impacted by slowing demand, the sharp fall in crude oil prices has also impacted the value of Indian exports.
The other major component of Indian exports, gems and jewellery, has been hurt by slowing consumption of discretionary items abroad while the export of machinery and capital goods has negatively been impacted by lower capital expenditure.
India always run a trade deficit, which means its imports are always higher than its exports. From FY 2012-13, India’s trade balance has decreased on the back of fall in imports as well as exports and currently the trade deficit is lowest in the last past 5 years.
The major reason for lower trade deficit is plunge in oil imports, lower oil prices has reduced the import bill by 40% in fiscal 2015-16. Non oil imports too contracted by 4% in fiscal 2015-16, leading to the trade deficit falling by 14%. Table 4
Oil has the highest contribution to India’s import bill at nearly 22% in FY 2015-16. Value of oil imports was constant in 2012-13 to 2013-14 and from 2013-14 onwards there was a huge reduction in oil imports due to which the trade deficit has narrowed.(As shown in Table 4)
We need to bear in mind that the major reason of lower oil demand in value was mainly due to the falling crude prices rather than a dip in volumes imported. Table 5
Gold imports have reduced drastically in FY 2013-14, which was a major component of the trade deficit. Gold contributes to around 10% of the import bill. The main reasons for the reduction in gold imports were the 80:20 rule imposed by the government, high prices of the yellow metal and a weak Rupee. The 80:20 rule was that, if importers bought 100 units of gold into the country, they had to re-export 20 units.
When the government scrapped the 80:20 rule, gold imports surged in FY 2014-15. In FY 2015-16 gold imports declined mainly due to high gold prices and global slowdown.
Weak global demand not only affects imports of oil and gold but exports of various commodities . Export of Iron & steel, Cereals, Cotton, Copper all have fallen in FY 2015-16 .Overall, it is important to note that the ongoing contraction of imports and exports is an indication of slackening demand globally. At the moment, GDP growth in the US is low, China’s growth has decelerated and the Euroarea and Japan are seeing only marginal growth.