India: Exports likely to again contract in FY 2015

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India: Exports likely to again contract in FY 2015

Forget the target of reaching US$ 340 billion - merchandise export in 2014-15 might even contract compared to the US$ 314 billion of 2013-14. Consecutive months of double-digit decline, coupled with poor performance of the top exporting sectors, are likely to drag down shipments, even as exporters continue their long wait for the government to unveil the new Foreign Trade Policy (FTP).

According to M Rafeeque Ahmed, President of the Federation of Indian Export Organisations, and a leading leather exporter, the sharp decline in the value of the euro against the dollar was also responsible for the double-digit decline in Indian exports in January and February. The euro's value came down to a 14-year low against the dollar. As a result, pricing has become a major issue in that market, which accounts for 18.5% of our exports.

Exports had fallen 1.85% in 2012-13, when shipments from India reached US$ 300 billion compared to US$ 306 billion in 2011-12. In 2009-10 as well, exports fell, by 3.4% year-on-year. If exports do fall this financial year as well, it would be a third decline in six years. In 2014-15, which ends this month, exports saw a double-digit fall in January and February - 11.2% and 15%, respectively. In fact, it was the third consecutive decline in exports in February and the fourth in the current financial year.

"This is the only financial year when the fourth quarter is performing poorly. Generally, exports have a tendency to pick up in the last quarter. This year, it looks difficult to reach even what we achieved last year," said Soumya Kanti Ghosh, chief economic advisor, State Bank of India. The target was to achieve US$ 340 billion worth of exports in 2014-15. However, the sector got adversely impacted on account of muted global demand, reflected in a huge fall in commodity prices. This led to a decline in export of the top five sectors, of which the biggest contraction was registered by petroleum products and agricultural commodities.

Petroleum exports used to be the biggest item of outward shipment, about 20% of the country's total. In February alone, export of petro products fell 54.6% to US$ 2.1 billion, over the US$ 4.6 billion in the same month of 2013-14. "Lower oil prices have led to an almost 50% decline in the dollar value of petro exports in January and February, year-on-year. At the current rate, exports will barely manage to touch last year's level," said D K Joshi, chief economist, CRISIL.

The US market seems to now be reviving, with its economy adding 295,000 jobs in February, and the unemployment rate falling to 5.5%, lowest in the post-recession period. A full-blown economic recovery there, however, remains elusive. The US economy grew 2.4% in 2014, marginally up against 2.2% the previous year.

"Exporters have to become aggressive in venturing into the newer markets, without which exports will not take a quantum leap," Ghosh said. Apart from petro products, he said exports got clobbered this financial year also because of falls in the outbound shipments of agricultural items, textiles, gems and jewellery. The fall in the last category has largely been due to the restrictions in import of gold, now relaxed significantly. In agri export, items facing a downward spiral are rice, meat products and oilmeal, due to low food prices worldwide.

Exporters, on the other hand are miffed that the new government is yet to detail a strategy for foreign trade. In the Union Budget for 2015-16, unveiled last month, there was no mention of specific incentives for the community. One of their main expectations had been extension of the 2% interest subvention across all sectors.