A lot has been written, discussed and debated over the monthly Indian export numbers, which have been falling for the last 8-9 months. In most months, it has been a double-digit decline. Sometimes the fall has been as high as 20%. Obviously, it does not look or feel good. It has been linked to how bad the situation is for the manufacturing sector and how, in general, the industry is not doing well.
To sum it up, the situation is bad. Or, is it that the situation "looks" bad?
To do a broad-level analysis, I am using the April-June 2015 exports numbers. Whether we can extrapolate that analysis to the whole of the last nine months, or not, can be debated, but I am hoping it gives a sense, at least.
The table below gives the export numbers for April-June 2014/2015 with a break-up of different heads or businesses.
Exports for the period have fallen by about 16%, which is around $12.8 billion in absolute terms.
The numbers have been given under 21 different heads. But it would be too much to go into the details of each of them. So, we restrict to the top heads, which account for most of the fall in exports.
Let us have a look at them in brief.
Let us get to the Big Daddy first. Exports numbers are down from $16.7 billion to $8.2 billion. A fall of 51%. This is $8.5 billion out of the total drop in exports of about $12.8 billion calculated above.
If one goes by the data available on the Petroleum Planning and Analysis Cell (PPAC) website, about 80% of this fall can be attributed to the steep fall in crude oil price itself (which is of the order of 45% y-o-y).
And it would not be outrageous to suggest that the volume drop is also a big function of how the demand behaves in the face of deflation (i.e. some temporary postponement of purchases). It is likely that a big chunk of the lost volumes maybe recovered later.
Petroleum products are all about refineries. How does this 51% fall in exports affect refineries?
Refineries work on the gross refining margin (GRM) basis, which is basically spread between crude price and price of derivatives like petrol and diesel. As long those spreads are in the acceptable range or have not changed much (in fact, most refineries have done very well on the GRM front in Q1 FY16), it would not materially affect them. Volumes do affect them, but there is a big possibility of recovering those later.
In fact, some of those export volume drops will also be a function of growing local demand. Refineries have not expanded majorly and any growth in local demand means there is that much less to supply on the exports side.
Net net.... I would think...effect of this reported 51% fall in petroleum exports is far less (almost negligible) than what the number suggests. (Inventory losses, if any, are out of scope for the topic of discussion).
And this drop in petroleum exports is 2/3rd of the total drop in exports reported for the April-June 2015 period.
Agri and Allied Products
The second biggest contributor to the export fall in absolute terms in this period. It is about $1.8 billion.
Have a look at the top contributors to the fall within the head:
Basmati Rice is again a case, where the price of product itself has gone down in the range of 20%-30%. So, there should be no surprises, if the export value goes down by something similar.
I am no agri-expert, but should it surprise, if in a year with poor monsoon and stagnant or falling production of most agri-products, their exports are down?
This has mostly to do with monsoon and its effects rather than any structural issues, whether policy-wise or demand-wise. There are a lot of other agri-products, whose exports have fallen where reasons are likely to be the same and have contributed to the overall fall.
This number of $1.8 billion is about 14% of overall fall of $12.8 billion. So, we have discussed about 80% of the fall in export numbers. There are many other heads under which exports have fallen.
For example, gems, jewellery, base metals, ores, minerals, plastics, and textiles. These individually may contribute $100-500 million to fall in exports. Again, most of these sectors have their basic commodity facing deflationary pressures and thus obviously have reported falling turnovers.
It is not clear if this rough analysis can be extended across the year or to the previous 9 months, but the broad story behind the decline of exports is unlikely to change much.
This analysis is also not to suggest that there are no difficult spots or industry situations at all. There will surely be some of them. But they are not the ones contributing in a major way to the export numbers or their decline.
There is also no denial that given our share of global exports, we should do far better than be happy with stagnant volumes.
However, the image that is created by a 15% or a 20% fall in exports is probably not the reality. It is not as if overall export volumes are crashing at that rate and industry is suffering. It is entirely possible, that for some of them volumes are actually going up but it is not getting reported because prices are down by much more.
A lot of deflation and its effects are being built into the numbers. These, obviously are contributing towards creating a base, which few months down the line, will probably make the export numbers look very decent on a y-o-y basis.