India exports growth falls to 0.8% in November, trade deficit narrows to $16.7 billion

A double-digit contraction in exports of gems and jewellery and engineering goods in November weighed upon the performance of non-oil exports.

A contraction in imports of gold and precious and semi-precious stones, transport equipment and pulses offset a portion of the rise in the crude oil import bill.

Aditi Nayar, principal economist at Icra Ltd, said if crude oil prices remain relatively stable around current levels, the merchandise trade deficit is likely to average a lower $14 billion in the remaining months of FY2019, compared to $16 billion in the first eight months of this fiscal.

With oil prices falling by over 30% since October, India’s external outlook is expected to improve.

However, a decision last week by the Organization of the Petroleum Exporting Countries (Opec) and some non-Opec producers, including Russia, to cut supply by 1.2 million barrels per day has supported prices this week.

That said, with an impending global slowdown and higher oil production in the US, the upside to oil price rise seems to have been capped.

Most economists have now narrowed down their current account deficit projections for 2018-19 after the current account deficit (CAD) touched a four-year high at 2.9% of gross domestic product (GDP) in the September quarter.

While ratings agency Icra Ltd now estimates the CAD at 2.6% of GDP, Bank of Baroda has projected the figure at 2.5%.

The International Monetary Fund, or IMF, has said that India’s CAD is expected to widen to 2.6% of GDP in 2018-19.

However, at current levels it is much narrower than the near 5% of GDP seen during the taper tantrum of 2013.

Data released separately by the Reserve Bank of India showed an 18.8% expansion in services exports in October, which partly benefited from a weaker rupee, contributing to a robust 23% rise in the services surplus.

In a report on India’s exports published as part of an economic strategy for the next government, economists Gita Gopinath and Amartya Lahiri said constraints to growth in exports appear to be generalised due to low scale of production, low productivity and institutional frictions.

“Policy initiatives going forward need to focus on reforms that encourage greater scale, specifically labour reforms that allow easier separation between firms and workers. Specific manufacturing sectors like textiles and electronics can be catalysts for growth and employment if one can encourage scale," they added.

They said the ongoing reset of the China-US trade relations may be an opportunity.

“US firms may look to move production to other low-cost destinations," they added.

In the 25 years since 1992 when India began liberalizing its trade regime, India’s share of world goods exports has risen from 0.5% in 1992 to 1.7% in 2017.

The corresponding export share of the much-celebrated Indian service sector rose from 0.5% to 3.4% during this period.

To put these numbers in context, over the same period the Chinese share of world merchandise exports rose from 1.8% to 12.8%.

Closer home, Bangladesh more than doubled its share of world merchandise exports in just the last ten years, going from 0.09% in 2007 to 0.2% in 2017.

More generally, while the world as whole exports around 30% of its GDP, India’s export share of gross domestic product continues to languish below 20%.