Cheap commodities main reason for export plunge: India Ratings
MUMBAI: Decline in global commodity prices, led by oil, and weakening euro are the key reasons for the continued fall in merchandise exports, says a report.
"The steep fall in export shipments is mainly driven by the fall in global commodity prices and the sharp weakening of the euro (averaged 16.6 per cent lower year-on-year)," India Ratings said in a report.
However, it added that the contraction in exports is not reflective of actual weakness in export volumes.
Merchandise exports have fallen by 16.1 per cent in US dollar terms over the 12 months ending November 2015.
According to Government data, exports slumped for the 12th straight month in November, declining 24.4 per cent, as petroleum exports plunged 53.9 per cent, followed by gems and jewellery (21.52 per cent), engineering goods (28.57 per cent) and iron ore (14.04 per cent).
The trade deficit for the April-November period stood at USD 87.54 billion, lower than USD 102.50 billion year-on-year. “Although global demand conditions remain sluggish, export volumes may not have fallen significantly," the report said.
Demand conditions in Asia, the OPEC and Africa have been hurt by falling commodity prices, moderating domestic demand and volatile exchange rates. However, Europe and the US continue to be supportive.
The report said about three-fourths of the decline is on account of a decline in exports of oil products and agri-commodities, in line with the fall in prices of these commodities.
A sharp decline in commodity prices has depressed the prices of many intermediate and manufactured goods, leading to a decline in the value of exported items, it explained.
The rating agency expects the mixed performance of export oriented sectors to continue, with some sectors performing better than others.
The report added that nominal income growth of corporates in most exporting sectors will remain depressed due to the deflationary impact of falling commodity prices.
"Also, most corporates which have exposure to Europe may be unable to increase prices to offset the decline in margins caused by the depreciation of the euro due to stiff competition from other Asian exporters," it said.
The report also believes that the credit profile of exporting corporates is unlikely to improve even in those sectors which are witnessing modest demand growth.