Millennium Post

Of Indian exports and oil prices

In most economic reviews, concerns were expressed over the fragile health of India's exports. The policy makers reiterated that the global crisis was the main reason for India's export slide. They argued that notwithstanding Indian rupee depreciated (by over eight per cent during past two years) and the two last EXIM policies intensified export based imports, exports witnessed negative growth during past two years. After having an exponential high growth of export till 2013-2014, exports made a sudden plunge, slipping into a negative growth space since 2014-2015.

But cursing global crisis is not appropriate. The reasons for India's negative growth in exports are different, and not the global crisis only. Plunge in exports of petroleum refinery products is the main reason for the negative growth in total export. Petroleum refinery products constitute a lump share in India's export basket. Global crisis supplemented the slump in export only. In other words, fall in crude oil prices and its concurrent impact on petroleum refinery products were the prime reason for negative growth in export.

Since early 2010s, global economic crisis was spearheaded by USA and EU – the major destinations of India's exports. But, India could insulate the shock in the beginning for the first three years taking the advantage of Indian rupee depreciation. India's export marked double digit growth during 2010-2011 to 2013-2014. During this period, India's total exports increased by an annual average of 16.6 per cent. It was only since 2014-2015, India witnessed a sudden slip into negative growth in exports. 

Exports declined by 1.3 per cent in 2014-2015 and further by 18.0 per cent during the first nine months of 2015-2016.  Why is it that while during the first three years of global crisis, India could resist the global shock and not after that? The years 2014-2015 and 20-15-16 coincided with the period when crude oil prices plummeted fall in international market. Crude oil is the major input for petroleum products. Given the situation, it is logical that fall in crude oil prices had ripple on India's exports of petroleum refinery products. In this backdrop, alleging global crisis for the debacle in India's export, does not sense much. India imports crude oil – almost 85 per cent of its requirement. 

It exports petroleum refinery products after producing domestically and meeting the domestic demand. Since crude oil is the major input in petroleum refinery products, fall in crude oil prices has commensurate impact on the export prices of petroleum refinery products. While the prices of crude oil imported into India declined over 100 per cent – from $105.5 per barreI in 2013-2015 to $46.2 per barrel in 2015-2016, value realisation from exports of petroleum refinery products declined in tandem. Exports of petroleum products declined by 18 per cent in 2014-2015 and further by 42 per cent in 2015-2016. In other words, the downturn in crude oil prices led the fall in unit prices of petroleum refinery products exported.  However, in quantity terms, the impact was not so big. In terms of quantity, exports declined by five per cent in each year of 2014-2015 and 2015-2016.
Petroleum refinery products are the single biggest item group in India's export basket. Over one-fifth of India's total export is comprised of petroleum products. India's exports of refinery based petroleum products include petrol, diesel naphtha, fuel oil and others.

The big share of petroleum products in India's export basket had a major backlash on the overall export of the country. Had petroleum been excluded from the export basket, India would have avoided the negative growth in exports. Minus petroleum exports, India's exports increased by 5.1 per cent in 2013-2014 and 0.5 per cent in 2014-2015.

Besides direct impact, the fall in crude oil prices impacted India's export indirectly, owing to the pressure on petro-dollar earnings of oil export countries.  Plunge in crude oil prices squeezed import demand of oil exporting economies.  The oil exporting economies are one of the major destinations of India's exports. West Asia –GCC countries (UAE, S. Arabia, Kuwait, Oman, Qatar) and Iran are the major destinations of India's export. They accounted for 17 per cent of India's total export in 2014-2015. During the nine month period of 2015-2016, India's exports to these countries declined sharply by 19 per cent, due to loss of petro dollar. Trade diversion is another factor which insulated India's exports from global crisis. Africa emerged a new destination for India's exports. Exports to Africa witnessed a robust growth of five-seven per cent in 2014-2015 amidst the gloomy situation in world exports. It emerged as an important insulator to set off the loses in exports of India. Africa's share in India's total exports increased from 7.9 per cent in 2010-2011 to 10.6 per cent in 2014-2015. In contrary, shares of major destinations of India's export declined. Excepting USA, share of EU in India's total export declined from 20.8 per cent in 2010-2011 to 19.2 per cent in 2014-2015 and that of ASEAN, share declined from 12.0 per cent in 2011-2012 to 10.3 per cent in 2014-2015.

South Africa + 4 (Kenya, Egypt, Tanzania and Nigeria) are the key drivers for India's exports to Africa. More than half of India's export to Africa is accounted by South Africa + 4. In 2014-2015, together these five countries accounted for 53.5 per cent of India's export to Africa. Further, Africa proved one of the important catalysts for India's export buoyancy.  Major Imports from Africa are diamond and precious stones, besides crude oil.  Diamond and precious stones are the main inputs for India's export of gems and jewelry – second biggest item of exports.

There were dramatic changes in India's export baskets to the African countries over a period of five years. Export to South Africa, which is the biggest destination of India's export in Africa, included more value added products than traditional items like agricultural and textile products. In 2014-2015, the two biggest items of India's export to South Africa were Petroleum products (29.8 per cent share) and motor cars (14.8 per centage share). As compared to these, the major items of export from India to South Africa were petroleum products (22.1 per cent share) textiles, pharmaceutical products and ships. In sum, global crisis does not signify a major factor for export downfall. Given the manufacturing sector getting prominence, as evinced in GDP growth in 2015-2016 (Advance estimate), India's export is expected to revive with Make in India after it is rolled out into the actual stream of economic activities. 
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