Do the recent Indian export numbers make any sense at all? The value of exports in July was almost double its level a year ago. They shot up by an astonishing annual rate of 81.78%, to $29.34 billion, at a time of great economic uncertainty around the world.
It is well known that the world economy is not in the best shape. The Organization of Economic Co-operation and Development (OECD), the rich countries’ club, said this week merchandise exports from the group of seven (G7) nations and the Bric countries slowed to 1.9% in the second quarter of this year, from 7.7% in the previous three months. Exports from China went up by a tenth in these months.
Economic growth in these major economies has likely further slowed down, on the back of fresh worries about a fiscal crisis in the West and interest rate increases in countries such as India and China.
So how are Indian exports flowering against this grey backdrop? One explanation offered by CLSA economist Rajeev Malik is that the value of Indian exports is now more strongly linked to global commodity prices. “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.” For example, petroleum and crude products accounted for 1.4% of Indian exports by value in 1996. Fifteen years later, that has climbed to 17.2%.
Another theory doing the rounds is that companies are pulling money back into India, as the issue of money parked in foreign tax havens attracts more political attention and governments across the world step up efforts to regulate the shadow banking system. One way such money can be brought back into India is through over-invoicing of exports. Not surprisingly, there is no data to back this claim.
The explanation that there has been a fundamental change in India’s export basket seems the more convincing one right now, but perhaps it is too early to dismiss the second explanation right away.