Indian export figures are not as impressive as they may appear

Based on 25 major commodity groups that account for more than 90% of total exports, our calculations suggest that real exports shrank by 1.9% year-on-year in May 2022, marking their first fall in eight months. Non-oil, non-gold exports, however, increased 0.6%, their 15th successive month of growth.

While nominal exports grew by 25.5% year-on-year in April and May, following a surge of 44.7% in 2021-22, real exports rose by only 2.9% during the two month period, following a growth of 21.4% in 2021-22. Further, although nominal exports have posted a growth of 8.5% in fiscal years 2020-22 (during the covid period), compared with 8% in the pre-covid period (fiscal years 2017-19), real exports have grown slower at 1.2% compared with 3% in the corresponding period.

A look at these major export commodities suggests that as many as 15 of them declined in real terms in May, including five of the largest 10 items. Therefore, while exports of petroleum products and textiles grew 61% and 10%, respectively, in May, they declined 12.8% and 2.1% year-on-year in real terms. In contrast, gems and jewellery and electronic goods continued to post solid growth in April-May, following a strong increase in 2021-22. Engineering goods—our largest export group—grew only 1% year-on-year in real terms in May, though it was up 12.7% in nominal terms in that month.

It suggests that global inflation has played a very important role in pushing India’s nominal exports higher. This conclusion is also confirmed by the fact that while India’s exports have risen very strongly, its share in global exports moved up only slightly from 1.71% in 2019 to 1.77% in 2021. It means that higher prices have led to higher export numbers almost everywhere in the world.

Not only was the decline in real exports in May shocking, but it is also worrisome because there was no commensurate fall in real imports. Like exports, India’s imports also surged to a record high of $716 billion in 2021-22, marking an eight-year high of 20.7% of GDP. Like exports, imports were also stagnant at around $500 billion in the past decade. Nevertheless, with imports rising faster in the past few months, India’s merchandise trade deficit averaged $20 billion between September 2021 and April 2022, a level never seen before except, once in October 2012. If this was not worrying enough, our trade deficit widened to a fresh all-time high of $24.3 billion in May 2022, as nominal imports grew 63% year-on-year, while exports grew 20.6% during the month.

As with exports, we made estimates of India’s real imports based on 28 major commodity groups that account for about 90% of the country’s total imports. Our calculations suggest that while real exports shrank in May, real imports grew 21.4% year-on-year, marking their first growth in three months. Non-oil non-gold imports grew 9.3%, continuing their 15-month rising streak.

This is not to say that global inflation has not affected India’s imports. Although nominal imports grew 45.5% in April-May, following a surge of 56.1% in 2021-22, real imports rose by only 6.4%, following a growth of 13.3% in 2021-22. Nominal imports grew 6% in fiscal years 2020-22 (that is, during the pandemic) compared with a growth of 10.5% in the pre-covid period (fiscal years 2017-19). However, real imports actually fell 2.2% compared with a growth of 4.8% in 2017-19. An average decline in real imports over the past three years confirms that India’s economic growth recovery has been very weak.

As many as eight of the major imported commodities declined in May, including two of the largest 10 items. Real imports of coal, coke and briquettes and vegetable oil contracted in May, but grew 172% and 18.8%, respectively, in nominal terms. In contrast, India’s imports of electronic goods, engineering goods (machinery and transport equipment) continued to increase in May.

The monthly trade deficit for electronic goods has also widened to about $4.8 billion in recent months from about $4 billion in the pre-covid period of fiscal years 2017-19. This is one of the focus areas under the Centre’s production-linked incentive (PLI) scheme. The Indian economy, however, has turned a trade surplus in engineering goods in the past two years from a deficit in the pre-covid period.

We often tend to look at nominal export growth and take it as a reflection of strong domestic production and thus of better economic growth. At the same time, higher imports are seen as an indicator of strong domestic demand. While this would usually be true, the current episode of very high global inflation requires one to segregate the impact of rising prices that inflate numbers. Our analysis suggests neither real exports nor real imports have grown at an exceptional rate in recent months or during the past three years, as inflation has played a major role in driving Indian trade figures to record highs. It crossed $1 trillion for the first time in 2021-22. 

Nikhil Gupta is chief economist, Motilal Oswal Group