Trade worries: Export shrink again in September, worst plunge in 26 months

  • 16-Oct-2018
  • Trade worries: Export shrink again in September, worst plunge in 26 months

Merchandise exports witnessed the worst contraction in 26 months in September despite a weak rupee, thanks mainly to an unfavourable base, while trade deficit eased from a near-five-year high to touch a five-month trough of $14 billion. Exports had last shrunk in March (by 0.7%).

Data released by the commerce ministry on Monday showed import growth, too, slowed to 10.5% in September to almost $42 billion, against 25.4% in the previous month. This indicates that the sharp rupee depreciation may have weighed on import demand, although higher festive consumption from October could reverse the temporary slowdown in appetite, said some analysts. This could widen trade deficit again, which, in turn, will weigh on the current account deficit (CAD) as well as the rupee.

The government, however, said the latest dip in exports is a “temporary out-of-trend phenomenon” and forecast rebound in October itself.

Exports dropped to almost $28 billion in September, against $28.6 a year earlier when it had jumped as much as 25.7%.

Services exports in August, however, continued to gain from the rupee depreciation to register a 20.6% expansion. Although export growth slowed from July’s 33%, services trade surplus rose to $6.2 billion in August, against $4.7 billion in July, showed the data released separately by the Reserve Bank of India.

Despite the drop in overall exports, a rise in oil prices helped boost outbound shipment value of petroleum products by 26.8% in September from a year earlier. Other export segments that saw good expansion last month were organic and inorganic chemicals (16.9%) and plastic and linoleum (28.2%).

Key sectors that witnessed sharp decline in exports in September included garments (33.6%), gems and jewellery (21.7%) and engineering goods (-4.1). As for imports, purchases of gold from overseas jumped 51.5% to $2.6 billion in September. Petroleum imports jumped 33.6%.

Elevated net oil import bill had pushed up merchandise trade deficit to a 62-month high of $18 billion in July before it eased a tad to $17.4 billion in August.

The CAD could rise to 3% of GDP in 2018-19, against 1.9% a year before, according to the latest estimate by the International Monetary Fund (IMF). The rupee has shed almost 14% in the past one year, over 2% in September alone.

Commenting on the fall in good exports, the commerce ministry said: “Exporters continue to be resurgent, with their realised incomes having gone up by almost 10%. October 2018 figures promise to be as per the on-going six-month trend again.” Goods exports in the first half of the fiscal rose 12.5%; even outbound shipments excluding petroleum and gems and jewellery products gained 10.3%. “Thus, the growth is robust and not confined to petroleum products alone,” said the ministry.

A weak rupee is supposed to brighten export prospects. However, depreciation of currencies of some peers against the dollar and the structural problems being faced by Indian exporters (high costs of logistics, raw material and wages etc) have limited the country’s ability to benefit much in the short term. Although it’s too early to gauge the impact of a sharp hike in MSPs of some crops such as cotton on exports of farm items, higher raw material prices will further dent our competitiveness.

More importantly, with the US and China having targeted each other’s goods, in a fresh escalation of a global trade war, India’s exports, like many others’, could come under pressure. The IMF has forecast trade volume growth at 4.2% in 2018 before easing further to 4% next year, against 5.2% in 2017.

Aditi Nayar, principal economist with Icra, said: “The sharper depreciation of the rupee relative to some emerging market peers, is likely to positively impact exports in certain sectors, including apparels, in H2 FY2019. Despite this, as well as the measures unveiled so far by the Government to curtail non-essential imports, we will not be surprised if the merchandise trade deficit rebounds above $17.5 billion in October.”

Federation of Indian Export Organisations president Ganesh Kumar Gupta said despite the latest fall, merchandise exports could meet the target of $350 billion in the current fiscal, against $304 billion in 2017-18.

Ravi Sehgal, chairman of enginerring goods exporters’ body EEPC India, said the drop in exports shows the rupee depreciation hasn’t quite helped. “We continue to bear high cost of raw material and interests, besides the uncertainties building around the tariff war between major economies of the world.”

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