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Record shipments in FY19 raise export footprint in GDP after 5 years

After a gap of five years, exports in 2018-19 saw their footprint on the country's Gross Domestic Product (GDP) rise, but the hope of diversifying the export basket remains a distant dream, with the share of non-petroleum and non-gems and jewellery shipment values remaining stagnant in overall outbound trade.

While trade receipts reached record a high of $331 billion in the last financial year, they failed to achieve the Commerce Department's internal target of $350 billion. But policymakers remain more worried over the difficulties of diversifying exports. Taking away the high value petroleum and gems & jewellery exports, the share of other sectors have remained stuck at the same level for the past five years.

The share of exports in GDP, calculated at current prices, went up in 2018-19 to 16.4 per cent, after five straight years of going down. "This is bound to happen, when overseas trade grows at a rapid pace, relative to domestic growth, which had remained around the same level for the past two years. Exports need sustained support," said Ranen Banerjee, Leader, Public Finance and Economics at PwC India.

The fortunes of the export sector continue to be guided by the performance of its two major contributors - processed petroleum and gems and jewellery. However, experts say the country hasn't been able to put in put in place a policy to boost either of these sectors, given the associated challenges involved. "Since India has to import the inputs for both goods in significant quantities, higher exports are a double-edged sword, swelling imports and ultimately widening the trade deficit," Chief Economist at India Ratings said.

India's $118 billion oil import bill in 2018-19 shot up by more than 26 per cent from the previous year's $87 billion. India is the third-largest crude importer in the world, and oil has made up more than a quarter of the national import bill for the past eight years. Despite oil prices remaining low throughout the year, and Brent crude falling by nearly 25 per cent from its four-year high of $86.74 in October, the instability resulting from US sanctions on Iran has ultimately pushed up prices.

Balancing the odds

The six-month waiver secured by India, Iran's second-biggest customer with completed orders of 24 million tonnes of crude in 2018-19, is set to end on May 1. "We have asked for an extension but the US has refused any further deliberations," a senior External Affairs ministry official said on Tuesday, as global prices climbed to a six-month high amid expectations of further hardening of prices.

With global oil prices remaining largely outside India's geo-political control, the government has stepped up efforts to contain the burgeoning trade deficit elsewhere. With trade deficit, especially with neighboring China, becoming a political topic in 2018-19, policymakers have tried to rein in imports on as many as eight occasions in 2018. This included measures such as raising duties on more than 400 inbound goods and putting import-restrictive clauses on scores of others such as electronic goods, solar panels and textile fabrics. But the Commerce Department is yet to create a comprehensive list of 'non-essential' imports that was commissioned by the Prime Ministers Office in September last year.

However, it has cracked down on the third-largest item in the import bill, diamonds. In October 2018, it raised import duties on half-cut or broken, and cut and polished coloured gemstones (including diamonds) to 7.5 per cent, from 5 per cent earlier, and raised duties on jewellery articles from 15 per cent to 20 per cent.

India is a global leader in cutting and polishing of diamonds, contributing 70 per cent by value, 85 per cent by volume and 92 per cent by pieces, according to the Gems and Jewellery Export Promotion Council (GJEPC). This has led to practical inconvenience and limited the business of cutting and polishing, impacting a large part of the employment in the sector, GJEPC Chairman Pramod Kumar Agrawal said. Other global trading centres such as New York, Dubai and Israel are at an advantage and the duty hike may encourage malpractices in India, he added.

Other sectors stuck

On the other hand, the share of non-petroleum, non-gems and jewellery exports have remained stuck for the last five years. In the first year of the current government, its combined share rose to more than 73 per cent, up from 68 per cent. Since then, it has remained stuck at the same level, dipping slightly in 2018-19 to 73.56 per cent.

Value addition has remained high on the government's agenda for exports and has been focused on in multiple policies such as the agricultural exports policy, the proposed industrial policy and last year's mid-term review of the foreign trade policy (2015-2020). It has also figured heavily in bilateral talks, such as those with Australia, the European Union and especially China, India's biggest trade partner. More than 70 per cent of India's exports to China remain in the form of low-value, raw materials like iron ore, cotton and organic chemicals.

But despite the push, sectoral challenges have held back other major foreign exchange earners. “The prospects look very challenging going forward. Higher prices charged by domestic steel producers have hit the manufacturing capabilities of user industries,” Engineering Export Promotion Council India Chairman Ravi Sehgal warned. Competition has forced Indian steelmakers to lower prices of prime steel in world markets but, hedged by anti-dumping duties, they have not felt the need to do the same in the domestic market, Sehgal pointed out.

The sector accounts for nearly one-fourth of the total foreign exchange earned through exports, but saw receipts dive from $92 billion in 2017-18 to $83 billion in the last financial year.

On the other hand, readymade garments, the sector in which India’s export competitiveness has steadily fallen over the past financial year. In 2018-19, total apparel exports stood at $16.15 billion, virtually unchanged from $16.72 billion in 2017-18. After starting the calendar year on a high, both export values as well as shipments have consistently fallen in this labour-intensive sector. Indeed, the slowdown in demand from the major markets of West Asia had been highlighted by an ICRA report in March. 

However, the 2018-19 trade data has provided a rare silver lining whereby most value-added sectors have started to show steady growth in the last two months. On the other hand, the core (non-oil, non-gold) trade balance reported a surplus for the first time in five years in March, according to a report by HSBC Global Research.

Twenty of the 30 major export sectors saw growth in March. In the same month, engineering goods rose by 16.2 per cent, after remaining sluggish with only 1.7 per cent growth in February, while readymade garments saw growth of more than 15 per cent, up from 7.1 per cent growth in the previous month.

Exports claim larger share of GDP after 5 years
. 2012-13 2013-14  2014-15 2015-16  2016-17* 2017-18# 2018-19^
Total GDP (Constant prices, Rs trillion) 92.13 98.01 105.27 113.69 122.98 131.89 141.00
GDP  growth (constant prices) (%) 5.5 6.4 7.4 8,0 8.2 7.2 7.0
Export of goods (Current prices, Rs trillion)
16.47 19.37 18.96 17.18 18.47 19.53 23.14
Export of Goods as share of GDP at Current Prices (%) 16.6 17.2 150.2 12.5 12.0 11.4 16.4

 
But share of non-Oil, non-gems and jewellery exports stuck for 5 years
Year Total Exports*  Total petroleum+gems & jewellery exports All other exports Combined share in all exports (%)
2018-19 331

(9.06)
87.84 243.16 73.46
2017-18 303.52

(9.78)
80.20 223.32 73.57
2016-17 275.82

(5.16)
76.05 199.77 72.42
2015-16 262.29

(-15.14)
70.78 191.51 73.01
2014-15 310.33

(-1.3)
99.16 211.17 68.04
2013-14 314.4

(4.66)
106.37 208.03 66.16
2012-13 300.4

(-1.81)
105.86 194.54 64.76
2011-12 305.96

(22.47)
104.66 201.3 65.79
2010-11 249.81

(39.75)
86.41 163.4 65.4
Figures in $bn unless indicated; * numbers in parantheses represent y-o-y percentage changes;  Source: Commerce Department


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