A rising rupee and uncertainty over GST take a toll on exports which continue to post slower growth month after month.
Have the country's merchandise exports come out of the woods? This question eludes a straight answer even after 11 consecutive months of growth in the country's shipments. Moreover, going by the Commerce Ministry's data, it is quite evident that India's exports are not in the pink of health.
In March this year, the shipments recorded growth of 27.6 per cent year on year. The robust March figures seemed to clarify that the country's exports were firmly in the positive zone after languishing in the negative territory for two successive years.
No sooner had the good news brought cheer that the export growth began losing steam in the following months. The country's shipments grew by a lower 19.77 per cent in April, further slowing down to 8.32 per cent in May, 4.39 per cent rise in June and 3.94 per cent in July.
Exports during April-July 2017-18 increased by 8.91 per cent over the corresponding period in the previous year to $94.75 billion, while imports during the same period grew by 28.3 per cent to $146.25 billion. Non-petroleum and non-gems and jewellery exports during this financial year so far jumped by 9.05 per cent to $94.75 billion. Oil imports during April-July 2017-18 saw a 20.87 per cent jump to $31.02 billion. Non-oil imports during FY18 increased by 30.46 per cent to $115.23 billion.
Goods exports in July registered meagre 3.94 per cent year-on-year growth, growing at the slowest pace since November 2016, when shipments rose by a mere 2.56 per cent. Data released by the Commerce Ministry show that major commodity groups of export showing positive growth in the month under review include engineering goods (15.16%), petroleum products (20.27%), organic and inorganic chemicals (20.67%), cotton yarn, fabrics and made-ups and handloom products (5.39%) and marine products (30.53%). Non-petroleum and nongems and jewellery exports in July increased by 6.93 per cent.
Meanwhile, goods imports in July recorded 15.42 per cent growth, the slowest pace of growth since 1.13 per cent growth registered in January this year. This led to trade deficit of goods narrowing on a month-on-month basis to $11.45 billion, the lowest since $10.5 billion recorded in March this year.
Major commodity group of imports showing high growth in July were petroleum products (15.02%), electronic goods (22.5%), machinery, electrical and non-electrical goods (7.34%), pearls, precious and semiprecious stones (6.86%) and gold (95.05%). Oil imports grew by 15.02 per cent in July, while non-oil imports rose by 15.55 per cent.
T S Bhasin, the chairman of the country's apex engineering exports body EEPC India, notes that growth in exports has certainly slowed, with rising value of the rupee against the US dollar, adversely impacting the bottom line of exporters. "This is quite evident from the trade data that show that while exports for July grew by 3.94 per cent in dollar terms, in rupee terms, the growth has turned negative. In rupee terms, exports have shrunk by 0.32 per cent in July to Rs 1.45 lakh crore," points out Mr Bhasin. He further adds that while engineering exports have still been growing at a respectable pace, it is due to pick-up in base metals. But the rupee value is a cause of concern for exporters.
There is another factor that has put brakes on export growth. According to exporters, implementation of the Goods and Services Tax (GST), the new indirect tax regime that came into force from July 1 this year, will further impact growth of the country's exports. "We would not be able to reach the $300-billion figure this year," stresses an exporter, who did not wish to be named. However, the exporters' body, the Federation of Indian Export Organisations (FIEO), emphasises that the country's goods exports will reach $325 billion in 2017-18.
Apart from the bullish number put out by the exporters' body, the FIEO is concerned over rising liquidity crunch among exporters. The FIEO has time and again raised the issue of blockage of about Rs 1,85,000 crore annually with the government with the GST coming into force. Unlike earlier, exporters now have to pay the duties first and seek refund later after exporting the goods. In the pre-GST regime, they were getting exemptions from paying of taxes ab initio. "We are worried with the liquidity issue as the refund mechanism would require payment of GST first and its refund subsequently. The additional cost of credit to manage the liquidity should be borne by the government, if the present exemption is not brought forward in the GST. On a rough estimate, export sector would be losing export competitiveness by about 2 per cent, and the same needs to be offset to the export sector," adds a statement from the FIEO.
Amid concerns of bleak export prospects in the near future, merchandise export growth of 8.9 per cent in April-July 2017 is quite heartening. It should be recalled that this positive, long-term growth in shipments follows two consecutive years of shrinking exports.
What seems to have helped lift exports this year so far is the uptick in commodity prices. This is reflected in the turnaround in petroleum and ore and minerals exports. Engineering goods and gems and jewellery, which account for 38 per cent of India's exports, recorded growth rates of nearly 11 per cent each in the April-July period against (-)4.8 per cent in the yearago period.
With agriculture and marine product exports also showing a sharp jump after shrinking last year, it would seem that the export turnaround this year has been broad-based even as labourintensive sectors, such as textile and leather, besides drugs and pharmaceutical, registered negative growth. The growth has been geographically dispersed as well with exports to Europe, the US and China up by 5.5 per cent, 5 per cent and 13.1 per cent, respectively in 2016-17.
However, the slowing pace of growth of exports this year is indeed worrisome. The positive numbers should be seen in the context of the base effect of export figures when shipments were in the negative last year. Another plausible factor at work here is the execution of earlier orders. No wonder, improvement in exports should have taken place amid sluggish trends in world trade. Meanwhile, the rupee continues its strong rally even as exporters remain clueless in the transition phase of GST. Amid these setbacks, one only hopes that exports do not slip back into the negative zone.
"The trade data show that while exports for July grew by 3.94 per cent in dollar terms, in rupee terms, the growth has turned negative and shrunk by 0.32 per cent." T S BHASIN Chairman, EEPC India
"We are worried with the liquidity issue as the refund mechanism would require payment of GST first and its refund subsequently. On a rough estimate, the sector would be losing export competitiveness by about 2 per cent."