Subdued global demand may hit India's export growth

As global crude prices soften and the world demand heads southwards, exports growth may soften in the second half of the current fiscal.

Experts told DNA Money that even though a depreciated rupee and a strong order book could provide some tailwind to exports, unfolding external factors like oil prices and slowing GDP growth in some economies could pin down its growth.

Ajay Sahai, director general and CEO, Federation of Indian Export Organisations (FIEO), said "maintenance" of exports growth will be a challenge from October onwards.

"Petroleum is the common factor in both imports and exports. On one hand, it boosts exports and on the other, it bloats the import bill too. Now, with the easing of crude prices, we expect the import bill to come down, but the bigger challenge from October onwards is that the base effect of crude price will kick in along with lower crude prices and so maintenance of export growth will be a challenge," he told DNA Money.

Elaborating further he said; "if we look at the 17.86% growth in exports in October, the last figure reported, the net export, or the value of exports, is much less than the value in September, which was negative. In September, we suffered a negative growth. In October, we have a growth of around 17% but still, the value of exports in October is less than September".

The October trade numbers, released by the government last week, reveal exports jumping over 17% to $26.98 billion compared to $22.89 billion last year. However, when compared to September this year, the month-on-month dip was 3.47% in October, down from $27.95 billion.

September had also seen the first slip in exports in the current fiscal as it fell 2.15% from $28.75 billion in the same month last year.

In the current fiscal, exports have consistently registered a robust growth till September. Experts see this trend reversing a bit.

Madan Sabnavis, chief economist, Care Ratings Ltd, also sees "moderate" export growth due to lower global crude prices. He expects the current fiscal year to end up with an export growth of 10-12%. Last fiscal, exports grew 9.8% to $303 billion.

"Growth in exports will be moderate, probably 10-12%. We should also remember that one of the major components of our exports is petroleum products. When the price of petrol goes up our exports benefit. That's what we have gotten in the month of October also. It (October exports) can also be higher because our exports are going up. That kind of scenario (higher crude prices) will get moderated in the coming months, which will mean that exports are not going to grow at that kind of rate. It could be in the region of 10-12%, assuming crude remains below $70 a barrel and don't start moving up," he said.

The Care economist also feels that subdued global demand due to subdued growth in some major economies could also adversely impact India's export growth.

"We are not looking at the world economic growth being steady as was expected earlier. Our exports depend on what happens to global economic conditions/ demand. That is why we were looking at 8-10% (exports growth), which we scaled up because of the advantage from higher crude in the last couple of months. I believe, we will not be exceeding 10-12%, which is on the higher side," Sabnavis projected.

Recently, International Monetary Fund (IMF) revised world GDP growth downwards by 20 basis points (bps) to 3.7% for 2018 and 2019. It has also cautioned about growth in many major economies slowing down in the coming months due to several economic and geopolitical factors.

FIEO's Sahai has a higher growth forecast than Sabnavis at 15%. He sees Indian exports benefiting from the US-China standoff and a weaker rupee. According to him, exporters' order books for the coming period are healthy and this has given the export group, he heads, the confidence to raise a robust growth outlook for the current fiscal.

"I must say that it is a problem so far as petroleum exports are concerned, but looking at the order books of exporters we expect 15% growth because in some sectors, particularly in textile and apparel, when I talk to exporters they say that with rupee moving to over 70 a dollar, many buyers have come back to them," said the FIEO chief.

According to him, exporters have informed him that when the rupee was at 65 per dollar, they were "outpriced" in the international market.

"Earlier, when the rupee was 65 a dollar, they (exporters) were factoring the currency at around 61-62 against the dollar and they were outpriced in the market, but now that rupee is around 72 a dollar and they quote 70, many buyers have come back to them," said Sahai.

He believes if the rupee remained soft by 12-13% against the dollar and volume growth is maintained at 5-6%, then India could easily achieve an export growth of 15%.

Sahai said Indian exports was also reaping gains from the US-China trade war; "global demand has definitely come down but China has suffered a lot. Some orders, which were earlier going to China from the US, have come to India".

However, Sabnavis feels otherwise and does not expect India to profit much from the US-China trade war; "has India actually captured the market on account of the US-China war? In my view, I don't think it has happened that way. If you are looking at China they have got into other markets".

Sahai also feels that with India's exports growth rate expected to outstrip global rate, it is likely that India could further increase its share in global exports.

"Our share in total global exports is 1.7%. This may go up because if we clock 15% and global trade grows at 3.5% then definitely our share will go up," said Sahai.

MACRO CONCERNS

$303bn India’s total exports in the last fiscal

$26.98bn Exports in October this year

37% Revised world GDP growth for 2018, according to IMF