Monday, May 20, 2024

Why no one is talking of Indian exports?

Black Monday also singed Indian markets. The key benchmark indices slid around 6 per cent due to panic selling on cue to Chinese equities meltdown. It is now given that rupee would be more volatile and India would be a dumping yard for Chinese goods. But to a terribly sick Indian exports, it could be a serious blow.

Let’s first check on India’s exports:

On a year-on-year basis, Indian exports have declined by 13.85%. It’s been in a freefall since December 2014. Indeed, it’s been stagnant since early 2012. For almost 50 months now, exports have languished. Yes, other Asian economies have also taken a hit. But it’s nothing compared to what’s been fate of exports for India. 

 “India’s export basket is a rather wide spread. Manufactured products account for 67% of share, followed by petroleum products (18%), agriculture products (12.5%) with minerals and ores contributing 1 percent of total exports,” according to Economic and Political Weekly.

In 1999-2000, manufactured goods had a share of 81% in Indian exports. Now it’s 67%. The monthly petroleum exports had peaked to $7 billion in July 2014. It shrank to a mere $2.4 billion in May 2015. Iron ore exports were $509.5 million in December 2011. It’s now a mere $100 million in May 2015.

Around 32 percent of India’s total exports (ores and minerals, crude oil and agricultural products) are directly exposed to global price volatility. That’s understandable. But non-commodity exports aren’t looking up either.

Earlier, the manufactured products almost entirely consisted of labour-intensive products such as textiles and readymade garments, leather, gems and jewellery. Now its’ mechanised engineering goods like automobiles, auto parts, capital goods and cotton and polyester yarn. Yet the fall is steep in manufactured products exports. If it continues, India would primarily become a commodities exporter which is bad news for employment growth.

Textile exports have been a sorry story. India is world’s third largest textiles exporter but in real terms, its’ share is a mere 6% of global exports. China in contrast has a huge slice of 35%. Bangladesh too has overtaken India due to its duty-free access to Canadian and European markets.

In the last one decade, India has diversified its export destinations. If it was US, Europe, Canada, Australia and Japan largely in 2000, now only a third of India’s exports go to these markets. Almost 71% go to emerging economies and 43% are shipped to Asian economies.

Now to the rupee volatility. If the rupee continues to fall, imports would be costlier, stoking inflation. The Reserve Bank would thus hold on to high interest rates and retard economic growth. Since India has a trade deficit—more imports than exports—the current account deficit will also rise. It in turn will further affect the rupee. This would further hurt investor’s sentiments as stock market returns become unappealing.

Lastly, the sharp devaluation in yuan will help China dump goods into the Indian market. It would hurt domestic manufacturers. Already the signs are there as tyre and steel makers’ stocks have fallen sharply in recent days. 

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