Notes on India’s export trends

The latest monthly data for India’s foreign trade gave some reason to cheer: Merchandise exports turned positive after a whole 18 months in June 2016. While growth itself was muted at 1.3% yoy, it shows a first sign of turnaround in global demand, if sustained. But this is hardly the only interesting feature of India’s present export patterns. Some of the major ones are explored in this post. 

I had first noted these features for a media query a few months ago, and it was worth its while now to see how much things have changed. Changes are evident in both the pattern of overall exports and specifically, in export components.

Key features of India’s merchandise exports

#1. USD v/s INR trends: Changes in exchange rate of the Indian rupee vis-a-vis the dollar has accounted for some divergence in India’s exports in dollar and rupee terms over the past one and a half years. This is evident even in the latest data: While exports have grown by 1.3% in USD terms, they have actually increased by 6.7% in INR terms. In fact, exports in rupee terms have shown positive growth in 4 of the past 5 months even as they remained firmly negative in dollar terms. That said, during the 18 months when dollar exports have declined by an average of over 13%, rupee exports have also declined by over 8%. This indicates that the decline in exports has been a real phenomenon, and not just related to currency movements.

#2. Component wise exports: In the past half year, there has been a change in the component wise trends in exports. If we look at commodity wise numbers of December 2015, there are 3 major items that are dragging down exports growth – engineering goods, gems and jewellery and petroleum products – which are also the largest categories in India’s goods’ exports basket – accounting for almost 48% of the total. Excluding these, too, however, there is a decline in exports, even though it is much smaller, suggesting that it was a broad based export decline. However, by June, engineering goods have turned positive. Since this category alone accounts for one fourth of major exports from India, it plays a significant role in the overall increase. Thus, exports have been able to recover, despite a continued decline in gems and jewellery, oil exports and ready made garments, which form 35% of goods’ exports. On an overall basis, around half the major exports are showing positive growth and vice-versa. 

#3. Services exports: Services exports tend to be an overlooked monthly number. The latest data, for May 2016, has shown a growth of over 13%, indicating India’s strong suit is still its services activity, even if the absolute number is smaller than goods’ exports.