After 21 months of abysmal
performance, India’s merchandise trade has finally shown one solid quarter of
turn-around. Both exports and imports have shown a positive performance over
the October-December 2016 period. While this would indicate improvement in
demand appetite both internationally as well as domestically, till firmer
positive trends show up, the numbers need to be taken with a pinch of salt.
Here’s why.
First, consider the growth rate
of imports at 0.5% yoy. This is only technically a growth number, with no
actual growth actually having taken place. At USD 34.3bn worth of imports in
December 2016, the figure is only marginally improved from the USD 34.1bn
imports in the corresponding month of the previous year. This is the slowest
growth seen in 3 months, with import growth coming in at 8.1% and 10.4%
respectively in October and November.
Second, even the growth that has
been witnessed, is on account of oil imports; which account for a little over
one-fifth of total merchandise imports. Oil imports during the month grew by
14.6% to USD 7.6bn from USD 6.7bn during December 2015. A rise in oil imports
indicates quickening economic activity if seen in volume terms. In lieu of
volume figures, oil imports can still represent rising demand if oil prices
remain unchanged. However, since the start of December 2016, prices of crude
oil have remained above the USD 50/bbl mark and are expected to harden further
in 2017 as global growth picks up pace. It is thus safe to assume that at least
some part of the increase in oil import growth is on account of fuel price
increases, though the extent remains unverifiable for now.
Third, non-oil imports actually declined
during the month by 3% to USD 26.6bn from USD 27.4bn during December 2015. The small
overall increase in imports is thus only on account of increase in oil imports,
with non-oil imports dragging back the sum total. This is thus, not good news,
since the value of non-oil imports is a more authentic measure of demand
conditions in the economy than oil imports, on account of greater price
stability. Non-oil imports represents a basket of goods like agricultural
products, precious metals and manufactured goods and at present, accounts for
4/5ths of total merchandise imports. Since prices are spread out over multiple
goods, the impact of sharp gyrations in prices of one good is unlikely to
impact the value of the overall basket as much as in the case of oil imports.
Nevertheless, all is hardly lost.
It might be a tepid recovery, but there are underlying signs that suggest that
a recovery is indeed possible if there are no more rude shocks to the economy.
In the follow up post, factors suggesting potential for real recovery of
imports will be discussed.
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