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Digging deeper
Questions have been raised about the strength of India’s merchandise
exports, despite the downbeat global economic environment. Some
analysts have even suggested that there are glaring inconsistencies in the
export data reported by India versus what the IMF reports as world
imports from India. However, our analysis suggests that these concerns are
exaggerated. India’s monthly export data are highly volatile and the
details (by country and by product) suffer an embarrassingly long lag in
being reported. But the annual data show that there is no lasting major
discrepancy between the IMF and Indian data. Further, it is often
overlooked that higher commodity prices also impact nominal exports.
Finally, Indian exports have been diversifying away from advanced
economies towards developing economies, especially in Asia. This in turn
offers some resilience to exports despite the weakness in advanced
economies. However, weaker global growth will hurt India’s exports but
the impact will be less pronounced compared to other Asian economies.
It is widely known that India’s WPI inflation is significantly affected by the
international prices of commodities, especially crude oil. Far less known is that
India’s goods exports are also affected by global commodity prices (Figure 1).
This is mainly a result of the change in the composition, which has made
exports more sensitive to commodity prices. For example, the share of
petroluem products in total exports has jumped to 17.2% in FY11 from a mere
4.3% in FY01. Also, a sizeable portion of other exports, such as ores &
minerals, manufacture of metals, non-ferrous metal, and machinery, are
sensitive to commodity prices. While higher commoditiy prices are expected to
affect the inflation outlook, their impact on nominal exports is largely ignored.
There is often confusion over the issue of India’s dependence on exports. Some
analysts argue that it is not very export dependent while others point out that its
reliance on exports has been increasing. The fact of the matter is that India is
becoming more sensitive to global trade currents as it integrates with the rest of
the world, but it still has the lowest export-GDP ratio among the key Asian
economies. Thus, while it is becoming more dependent on exports (Figure 2), it
remains the least export-oriented economy in Asia
India’s increasing global trade integration is one of the favourable structural
tailwinds we analyzed in the Viewpoint Headwinds vs tailwinds in 3Q11
EoAE (30 June). The share of India’s exports and imports of goods and services
in GDP more than doubled to 46.3% in FY11 from an average of 20.9% in the
ten years to FY2000. The share of exports in GDP surged to 21.5% from 10%
over the same period. Overall, India is engineering a better mix of domesticexternal
drivers of growth after having been a closed economy for a long time.
Greater integration with the rest of the world has also resulted in faster export
growth and diversification in the export profile. These in turn have contributed
to boosting India’s share in world trade (Figure 4). Indeed, after being almost
stagnant in the 1980s and 1990s, India’s share in world exports more than
doubled to 1.5% in 2010 from 0.7% in 2000.
India has actually been decreasing its reliance on advanced economies while
increasing the dependence on developing economies (Figure 5). Admittedly,
there could be some third-country routing that lowers the reported direct
exports to advanced countries, but this is unlikely to be as significant as in
the case of other Asian economies. The share of shipments to advanced
economies has dropped to 45.2% of total exports in 2010 from 64.6% in
2000. Over the same period, the share of exports bound for emerging and
developing economies increased to 54% from 32.2%. Interestingly, the
share of Middle East & Africa (21%) is slightly higher than the share of
exports to developing Asia (19.5%).
With the US and the EU accounting for 31% of total goods exports, India’s
merchandise shipments are bound to be affected by the deceleration in
growth in these regions. Exports will also suffer from the already palpable
moderation in Asian demand as economic growth moderates owing to the
weaker global backdrop. India has become more sensitive to Asian demand,
with the share of exports to developing Asia accounting for 19.5% of total
exports in 2010, up from 10.7% in 2000.
India’s monthly external trade data tend to be very volatile, partly owing to
some methodological issues, including how shipments from special economic
zones (SEZs) are included. For example, so far in CY2011, export growth has
varied between 34.4% YoY in April and 82% in July. Last year’s base effect
alone cannot explain such a large variation. Also, in recent months, the positive
correlation between export and import growth has broken down.
The strong exports performance has raised questions about the data reported
by India, especially as this strength shows up despite the weakness in
demand in the advanced economies. Some analysts have highlighted
“inconsistencies” in the export data reported by India and the world imports
from India reported by the IMF (arrived at by summing the imports from
India reported by various countries).
Admittedly there are some variations for a few months in the monthly data
(Figure 7), but these seem to often get ironed out in the annual data, which
generally do not show large-scale discrepancy (Figure 8). It appears that
some monthly reporting issues on the Indian side rather than a systematic
bias could be responsible for the monthly volatility. Still, it would be wrong
to conclude that India’s annual export data are consistently at odds with the
annual data for world imports from India reported by the IMF.
the changing profile of exports and imports by product.
There are two important aspects of India’s global trade integration that position
it uniquely among Asian economies: (1) it is low on electronic hardware
exports, unlike most of the other Asian economies that are also closely interconnected
in the electronic production supply chain; and (2) there has been a
steady increase in commodity-based exports. Apart from the jump in the share
of petroleum products in total exports, there has been an impressive increase in
the share of engineering goods, especially transportation equipment. However,
the engineering goods category also includes several items, such metals and
metals-related, which are sensitive to global commodity prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Digging deeper
Questions have been raised about the strength of India’s merchandise
exports, despite the downbeat global economic environment. Some
analysts have even suggested that there are glaring inconsistencies in the
export data reported by India versus what the IMF reports as world
imports from India. However, our analysis suggests that these concerns are
exaggerated. India’s monthly export data are highly volatile and the
details (by country and by product) suffer an embarrassingly long lag in
being reported. But the annual data show that there is no lasting major
discrepancy between the IMF and Indian data. Further, it is often
overlooked that higher commodity prices also impact nominal exports.
Finally, Indian exports have been diversifying away from advanced
economies towards developing economies, especially in Asia. This in turn
offers some resilience to exports despite the weakness in advanced
economies. However, weaker global growth will hurt India’s exports but
the impact will be less pronounced compared to other Asian economies.
It is widely known that India’s WPI inflation is significantly affected by the
international prices of commodities, especially crude oil. Far less known is that
India’s goods exports are also affected by global commodity prices (Figure 1).
This is mainly a result of the change in the composition, which has made
exports more sensitive to commodity prices. For example, the share of
petroluem products in total exports has jumped to 17.2% in FY11 from a mere
4.3% in FY01. Also, a sizeable portion of other exports, such as ores &
minerals, manufacture of metals, non-ferrous metal, and machinery, are
sensitive to commodity prices. While higher commoditiy prices are expected to
affect the inflation outlook, their impact on nominal exports is largely ignored.
There is often confusion over the issue of India’s dependence on exports. Some
analysts argue that it is not very export dependent while others point out that its
reliance on exports has been increasing. The fact of the matter is that India is
becoming more sensitive to global trade currents as it integrates with the rest of
the world, but it still has the lowest export-GDP ratio among the key Asian
economies. Thus, while it is becoming more dependent on exports (Figure 2), it
remains the least export-oriented economy in Asia
India’s increasing global trade integration is one of the favourable structural
tailwinds we analyzed in the Viewpoint Headwinds vs tailwinds in 3Q11
EoAE (30 June). The share of India’s exports and imports of goods and services
in GDP more than doubled to 46.3% in FY11 from an average of 20.9% in the
ten years to FY2000. The share of exports in GDP surged to 21.5% from 10%
over the same period. Overall, India is engineering a better mix of domesticexternal
drivers of growth after having been a closed economy for a long time.
Greater integration with the rest of the world has also resulted in faster export
growth and diversification in the export profile. These in turn have contributed
to boosting India’s share in world trade (Figure 4). Indeed, after being almost
stagnant in the 1980s and 1990s, India’s share in world exports more than
doubled to 1.5% in 2010 from 0.7% in 2000.
India has actually been decreasing its reliance on advanced economies while
increasing the dependence on developing economies (Figure 5). Admittedly,
there could be some third-country routing that lowers the reported direct
exports to advanced countries, but this is unlikely to be as significant as in
the case of other Asian economies. The share of shipments to advanced
economies has dropped to 45.2% of total exports in 2010 from 64.6% in
2000. Over the same period, the share of exports bound for emerging and
developing economies increased to 54% from 32.2%. Interestingly, the
share of Middle East & Africa (21%) is slightly higher than the share of
exports to developing Asia (19.5%).
With the US and the EU accounting for 31% of total goods exports, India’s
merchandise shipments are bound to be affected by the deceleration in
growth in these regions. Exports will also suffer from the already palpable
moderation in Asian demand as economic growth moderates owing to the
weaker global backdrop. India has become more sensitive to Asian demand,
with the share of exports to developing Asia accounting for 19.5% of total
exports in 2010, up from 10.7% in 2000.
India’s monthly external trade data tend to be very volatile, partly owing to
some methodological issues, including how shipments from special economic
zones (SEZs) are included. For example, so far in CY2011, export growth has
varied between 34.4% YoY in April and 82% in July. Last year’s base effect
alone cannot explain such a large variation. Also, in recent months, the positive
correlation between export and import growth has broken down.
The strong exports performance has raised questions about the data reported
by India, especially as this strength shows up despite the weakness in
demand in the advanced economies. Some analysts have highlighted
“inconsistencies” in the export data reported by India and the world imports
from India reported by the IMF (arrived at by summing the imports from
India reported by various countries).
Admittedly there are some variations for a few months in the monthly data
(Figure 7), but these seem to often get ironed out in the annual data, which
generally do not show large-scale discrepancy (Figure 8). It appears that
some monthly reporting issues on the Indian side rather than a systematic
bias could be responsible for the monthly volatility. Still, it would be wrong
to conclude that India’s annual export data are consistently at odds with the
annual data for world imports from India reported by the IMF.
the changing profile of exports and imports by product.
There are two important aspects of India’s global trade integration that position
it uniquely among Asian economies: (1) it is low on electronic hardware
exports, unlike most of the other Asian economies that are also closely interconnected
in the electronic production supply chain; and (2) there has been a
steady increase in commodity-based exports. Apart from the jump in the share
of petroleum products in total exports, there has been an impressive increase in
the share of engineering goods, especially transportation equipment. However,
the engineering goods category also includes several items, such metals and
metals-related, which are sensitive to global commodity prices.
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