Exports Have Bounced Back Sharply After The Covid-19 Lockdown; India Needs The Momentum To Continue

Exports earnings form a key high frequency economic indicator. September 2020 was the first month of goods export rise after a six month falling streak. Exports registered almost 6 per cent year on year growth over September 2019 and hit the $27.58 billion mark.

In a Covid-19 pandemic-marred year, this is a good sign. Indian exports have recovered much faster than imports, indicating an operational resilience in a very tough year. Not only did the lockdowns created day to day hassles for manufacturers, the global demand itself has been under pressure with all major buying centres for Indian goods witnessing their own economic slowdown.

In fact in June this year, India recorded its first-ever trade surplus since January 2002. That was the era when India did not depend much on Chinese imports and was taking small steps in capturing some of the merchandise markets. But it was all downhill since then, until the pandemic-led dynamics produced a $790 million trade surplus this year.

Exports bouncing back to normal also come with two additional data points — the exports to China and to the United States.

Indian exports to China grew from $8.4 billion in the first six months of the financial year 2019-20 to $10.3 billion in the same period of the financial year 2020-21. This 26.3 per cent per cent growth in exports helped India narrow down the trade deficit with China, with imports reducing too on the other side.

The increase in exports was mainly contributed by engineering goods, which grew almost 94 per cent in value terms and iron core, which grew 178 per cent in value terms.

The former is good news for the Indian medium and small enterprises. The latter is mixed news — eventually India needs to focus on capturing the more valuable parts of the manufacturing value chain. For the mining industry, it would mean greater steel production and export.

While India has seen four straight months of exports increase to China from May to August, the imports have been declining. More Indian firms than before are looking to decouple from China and the initial ramp up in manufacturing in India is now being seen with the incentives under the Aatmanirbhar Bharat programme kicking in.

The trade deficit with China in the first five months of this financial year until August has narrowed to $12.6 billion. This deficit was $22.6 billion in financial year 2019-20, $23.5 billion in 2018-19 and $26.33 billion in 2017-18.

India’s trade deficit with China peaked in the financial year ending March 2017 at about $63 billion. The deficit has been narrowing since then, but the sharpest decline will be observed in the current financial year ending March 2021.

The exports to the US in September grew 15.5 per cent from $4.4 billion in 2019 to $5.1 billion in 2020. The rise was contributed mainly by engineering goods which grew 17.6 per cent and gems and jewellery which grew 15.8 per cent. This was a good bounce back as so far this financial year, exports to the US were down by 24.6 per cent.

The revival in September marked consumption demand returning to the American market. The growth categories also help Indian medium and small firms and jewellery traders, who have had a washout year so far, with retail business locked down globally for several months.

India has also benefited from export of essential agriculture commodities this year, with the category posting a 43 per cent growth from April to September this financial year compared to the same period of the previous financial year. Exports of basmati and non-basmati rice variants have seen a big increase this year.

While the stabilisation and growth of Indian exports is good news, the headwinds are hardly over. In fact, there are some new issues to be resolved as the global shipping starts to normalise. After the global shutdown was lifted, shipping containers lying idle in many ports are yet to find their way to usual destinations.

With limited transportation resuming, the number of container ships calling on Indian ports has also been limited. This has led to more than 60 per cent hike in freight costs out of India to major global ports. With the air traffic also normalising slowly, the throughput capacity has been throttled.

The Commerce Ministry officials are trying to solve the issue of increased freight costs and high demurrage charges exporters are currently bearing. But the freight costs may stay elevated for the next couple of months until shipping patterns normalise.

Exporters as well as importers have complained of longer customs clearance times, which have gone up from the usual 15 to 20 days to 25 to 30 days now. The new faceless assessment process put in place by the government is yet to fully stabilise, so while the change in process itself is welcome, it has caused near-term pain.

Finally, the farmer protests in Punjab in the last few weeks also led to holding up of export consignments, compounding the issue of goods not reaching the ports even as the shipping of goods remained slow and costly.

With Indian industry fully up and running, it is important that Indian exports pick up in areas like textiles and engineering goods. The Indian export competitiveness will be tested in these categories where we compete with smaller Asian countries.

These industries are also labour intensive, which adds to the job market normalisation. As several of Indian export destinations are witnessing a second wave of the Covid-19 pandemic, the uncertainty may continue for some more time.

With the government looking to capitalise on the global trade momentum away from China, next few months will be crucial for Indian exports. Not only this year’s trade picture needs to improve, but there’s also a directional one-time opportunity to tap.

Nonetheless, despite all the issues and disruptions across the supply chain, it is heartening to see the Indian exporters getting their act together in the last couple of months. The export increase to the US and the trade deficit narrowing with China is good news. Sustaining this over the full year will be key to building on the idea of Aatmanirbhar Bharat.