After Stellar Growth In March, Export Revival On Its Way For India?

A trailer carries a container off-loaded from a ship at a port in Navi Mumbai, Maharashtra, India. (Photographer: Amit Bhargava/Bloomberg News.)

Brokerages expect India's export revival to continue after outbound shipments witnessed double digit growth in both February and March.

Exports have been rising for the last seven months but growth touched double digits in February at 17.48 percent as compared to the same period a year ago. Last month, exports grew 27.6 percent, surging to $29.2 billion against $22.9 billion in March 2016. The rate of growth was the highest in the last five years, according to Bloomberg data.

So, what prompted a surge not seen since September 2011?

The numbers suggest that export growth has become broad-based and is driven by volumes and not just the price effect, according to a report published by Nomura Global Research.

The months of February and March saw shipments rise across different categories ranging from automobiles to gems and jewellery. In March, for instance, the engineering goods segment which includes automobiles saw a 46.6 percent rise in exports compared to last year, while gems and jewellery exports rose 12.5 percent. Petroleum products exports surged by 69 percent year-on-year.

In February, too, exports in the non-gems, non-oil segment saw a significant 20 percent year-on-year growth.

While oil exports rose sharply (69.1 percent y-o-y), non-oil exports also surged 23.2 percent. The pick-up was also rather broad-based, with exports of all key export sectors – engineering goods (capital goods), agricultural products, gems & jewellery, textiles and pharmaceuticals – rising sharply.

Nomura Global Research

Nomura attributes the pick up in export growth to both an increase in prices across commodity categories as well as stronger global demand. The 27 percent growth in exports beat the brokerage's estimate of 14.5 percent.

Meanwhile, Axis Capital termed it a “genuine improvement” in India's trade and noted that stronger export growth provides an additional avenue for GDP and income growth. It added that there has been a significant improvement in volumes for major export categories.

“For exports the pick-up is more diverse. Engineering goods, petroleum products, gems & jewelry, iron ore, apparel, marine products, rice and spices have all seen significant volume improvements,” the report stated.

Noting the impressive growth in engineering goods segment, where shipments rose 46.6 percent year-on-year, Axis Capital said that a major reason behind this is more exports of ships and boats to Malaysia.

Mainly iron & steel and transport equipment [has resulted in higher exports]. The former is being driven by anti-dumping duty on Chinese steel with growth mainly coming from Europe. The latter is seeing demand growth from parts of Europe and South-east Asia. Exports of ships & boats to Malaysia have risen sharply.

Axis Capital Report (April 15)

An export revival cannot be taken for granted just yet. The political climate in the U.S. and a slowdown in the Chinese growth engine could hurt export volumes, Axis said.

While export growth has surged, the benefits for the country's trade balance are minimal as imports have risen equally sharply.

In March, imports were up 45 percent, which took the trade deficit to $10.4 billion. Nomura said in its report that it expects the current account deficit to rise from 0.6 percent in 2016 to 1.6 percent of the GDP this year.