Exports hit India’s growth story in 2015, fall to be steeper in 2016
Low commodity prices and a global slowdown, driven by faltering Chinese economy, is all set to take exports to their lowest in five years in 2015-16. This in turn could derail the recovery process.business Updated: Dec 26, 2015 00:45 IST
Exports have been a drag on India’s growth story in 2015.
Traders are feeling the pinch, the government is worried and policymakers are brainstorming to come up with measures to boost shipments.
The only consolation: A falling rupee, which has depreciated by 4.5% in 2015, has helped exporters in some sectors earn more dollars.
Low commodity prices and a global slowdown, driven by faltering Chinese economy, is all set to take exports to their lowest in five years in 2015-16. This in turn could derail the recovery process.
With exports getting affected, and domestic demand subdued, capacity utilisation levels for key sectors will take time to improve, which will delay the recovery process of companies.
“Regardless of the causes (of drop in exports), the effect has been a drag on growth,” the Mid-Year Economic Analysis tabled in Parliament last week said.
In November, exports fell for the 12th straight month, declining 24.43% year-on-year to $20.01 billion. But a 30.26% decline in imports to $29.80 billion ensured that the trade deficit remained on track at $9.78 billion in November against $16.23 billion a year ago.
For the first 11 months of the calendar year, exports reached $243.68 billion against $323.2 billion for the whole of 2014.
“Going by the current trend, we may end up with exports of $265 billion in 2015, a 21.9% decline from 2014,” said SC Ralhan, president, Federation of Indian Export Organisations (FIEO). “Given the global situation, the situation will take time to improve. Much will depend on commodity prices.”
On a cumulative basis, exports in the first eight months of 2015-16 stood at $174.3 billion, compared to $213.7 billion a year ago, a decline of 18.5%. In 2014-15, India’s exports totalled $310.5 billion.
“The policy challenge is to uplift growth by boosting domestic demand,” said DK Srivastava, chief policy adviser, EY India.
Policymakers are also worried that a recent agreement among the US, Japan and 10 other countries, the Trans Pacific Partnership (TPP), will further hurt prospects for India’s exports. The TPP removes tariff and non-tariff barriers among participants. And as products from participant countries turn cheaper, Indian goods will lose favour.
Rating agency Crisil blames India’s focus on Asia, which accounts for almost 50% of total goods exported, as the primary reason for the decline. It is more than the combined share of Europe and the US at 31.8%.
During April-October period of the current fiscal year, India’s exports to Asia declined nearly 19% and that to Europe by 11.2%.
And, as cheaper Chinese goods flood the world market, India’s export competitiveness will also take a hit.
“The threat of competition from cheaper Chinese imports” actually hit trade in 2015, said Dhananjay Sinha, head, institutional research of Emkay Global Financial Services.
According to rating agency Crisil, India should look at other regions, especially Africa, to boost shipments.
Focus on projects like Make in India, which can help revive domestic demand, can also counter falling exports, said Gokul Chaudhri, leader, direct tax, BMR & Associates LLP.
The government, though, is optimistic. “There is no crisis in India on the export front and while there is a need for caution, there is no need for alarm,” the commerce ministry said recently.
But if numbers are anything to go by, the Centre sure has its task cut out for 2016.