Why India's goods exports might keep tumbling

So, what has led to this rather large drop? The key reason for this is the huge fall in petroleum exports. India consumes much more oil than it produces. In fact, so far in this financial year, India has imported close to 87% of the crude oil that it has consumed. Given this, the country is not in a position to export crude oil. Nonetheless, it does import crude oil, refine it and then export petroleum products. In that sense, India’s petroleum exports consist fully of petroleum products.

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Cast your eyes on the chart alongside. The proportion of petroleum products in overall goods exports has gone up over the past year. From January 2020 to September 2021, petroleum exports averaged less than 11% of overall goods exports. This is because up until September 2021, the price of oil was around $70 per barrel.

Post this period, oil prices started to go up, and so did the proportion of petroleum exports in overall goods exports. In March, when goods exports peaked, petroleum exports comprised around 22% of it. This jumped to 25% in June. Some of this was an impact of oil prices going up. In March, the price of the Indian basket of crude oil had averaged at around $113 per barrel, jumping to $116 per barrel in June.

In October, petroleum exports as a proportion of overall goods exports fell to 16%. A simplistic analysis would suggest that this primarily happened because oil price fell from its peak levels in June and averaged around $92 per barrel in October. But note that oil prices averaged around $91 per barrel in September when the proportion of petroleum exports was almost 24%.

So, what gives?

Europe has emerged as one of the main destinations for India’s petroleum exports during this financial year. From April to September (H1FY23), exports to the continent stood at $8.7 billion, against $3.8 billion during H1FY22. As such, data for petroleum exports to Europe in October will be available only when the detailed trade data is published next month. Nonetheless, given the almost recessionary economic conditions that now prevail in Europe, India’s petroleum exports to the continent perhaps may have fallen in October. This could have played a big role in dragging down the overall petroleum exports to $4.8 billion in October from a peak of $10.7 billion in June. Of course, a fall in oil prices also must have had some impact.

Over and above the fall in petroleum exports, India’s non-petroleum goods exports in October fell by 18% year-on-year to $25 billion. They have fallen by 28% in comparison to peak non-petroleum goods exports of $34.7 billion in March. A close look at the data suggests that in October, exports of engineering goods, India’s other big export, fell by 21% year-on-year to $7.4 billion. The exports of readymade garments also fell by around 21% to $988 million.

This largely leads to two conclusions. First, the impact of the economic slowdown across the rich Western world has started to show up in Indian goods exports. Second, because of the first reason, the theory that a weaker rupee will help goods exports isn’t really playing out. Also, many importers push for better prices when the currency of the exporting country depreciates against the dollar.

To conclude, as the situation in the rich world economies goes from bad to worse in the coming months, India’s goods exports are likely to take a further beating. And that’s something to worry about.

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