Foreign Trade Review. Overview of Trade

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1 US $ Bn Foreign Trade Review Contact: Madan Sabnavis Chief Economist madan.sabnavis@careratings.com Dr. Rucha Ranadive Associate Economist rucha.ranadive@careratings.com Mradul Mishra (Media Contact) mradul.mishra@careratings.com August 0, 017 I Economics After two years of relatively stagnant global demand, there has been a gradual uptick observed in recent months which has the potential to improve our exports performance. India s exports will gain momentum going forward in case the revival in demand is sustained. In this study we assess the trends in foreign trade in the first four months of current fiscal year FY18 vis-à-vis previous years in the comparable periods. Overview of Trade Exhibit 1: India s trade deficit (Apr-July) FY1 FY1 FY16 FY17 FY The trade deficit of the Indian economy had narrowed consistently during these months for the period FY1 - FY17. Trade deficit narrowed from US $ 9. billion in FY1 (Apr-Jul) to US $ 6.6 billion in FY17 (Apr-Jul). However, in FY18 (Apr-July) the trade deficit widened to US $ 1. billion. The higher trade deficit can in part be attributed to higher growth in imports on account of increase in gold imports and higher crude oil and commodity prices in global markets. Exhibit : Export and Import Growth (Apr-July) Disclaimer: This report is prepared by CARE Ratings Ltd. CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE Ratings has no financial liability whatsoever to the user of this report % FY1 FY1 FY16 FY17 FY18 Export growth (%) Import growth (%)

2 Economics I Foreign Trade Review Exhibit plots the growth rates of exports and imports for last five years during the months of April to July. The exports and imports growth of India during the first four months of the fiscal turned positive in FY18 (Apr-Jul) after FY1 (Apr-Jul). In terms of growth, exports have indicated fluctuating trend over the last five years. In FY16 (Apr-Jul), the exports growth turned negative to (-) 1.7%. Thereafter, the exports picked up. In FY18 so far, exports grew by 8.% compared with contraction by (-).9% in the comparable period a year ago. Growth in imports on the other hand has witnessed contraction continuously in the last four years [since FY1 (Apr- Jul)]. Imports that had grown at 1.0% in FY1 (Apr-Jul) contracted at (-) 16.1% in FY17 (Apr-Jul). In FY18 (Apr-Jul imports have grown at a high rate of 8%. The uptick has mainly emanated from increased global commodity prices. Exhibit : Share of petroleum and non-petroleum in FY18 (Apr-Jul) Export Import POL Non-POL The share of petroleum and non-petroleum commodities in the basket of total exports and imports in the first four months of fiscal FY18 is presented in Exhibit. It is evident that non-petroleum commodities constitute more than 8% of the total exports of India while petroleum products share is 1%. In FY18 (Apr-Jul) the exports of petroleum products have grown at % while that of non-petroleum products have expanded at 7.% compared with the corresponding period in FY17. Likewise, a little less than 80% of the total import basket comprises non-petroleum products. In FY18 so far, the imports of non-petroleum products have increased considerably at the growth rate of 0% compared with that in FY17 (Apr-Jul). The growth of petroleum products stands at 1% in FY18 (Apr-Jul) over the comparable period in FY17. Composition of foreign trade While at the aggregate level both exports and imports are growing, it is also interesting to assess which commodities are in focus in India s foreign trade. We are thus assessing commodity-wise growth in exports and imports of India during first four months of FY18.

3 Economics I Foreign Trade Review Table 1: Exports - Commodity-wise growth in FY18 (Apr-Jul) Commodity Growth (%) Oil meals 79. Iron ore 6. Cashew 9.7 Marine products 6. Rice.8 Inorganic/organic/agro chemicals 0.7 Petroleum & crude products 0. Engineering goods 1.9 Coffee 11.9 Tea 10. Plastic & linoleum products 7. Readymade garments.9 Electronic goods. Spices. Manmade yarn fabrics made-up Leather & leather manufactures -1 Gems & Jewellery -1.8 Carpets -. Jute manufacture including floor coverings - Drugs, pharmaceuticals & fine chemicals -6. Handicrafts excluding handmade carpets -10. Tobacco -17. Oilseeds -.9 Other cereals -7. Table : Imports - Commodity-wise growth in FY18 (Apr-Jul) Commodity Growth (%) Gold 167. Cotton raw including waste 10. Silver 10. Coal, coke & briquettes 6. Pearls precious & semiprecious stones. Electronic goods 6. Metallic-ferrous ores & metal scrap 0.6 Dyeing tanning & coloring materials 0. Vegetable oils (edible) 8. Iron & steel.1 Chemical material & products.8 Petroleum crude & products (POL) 0.1 Artificial resins, plastic materials etc. 19. Pulses 16. Wood & wood products 16 Machine tools 1. Pulp & waste paper 10. Leather and leather products.8 Newsprint -0.1 Project goods -0. Medicinal & pharmaceutical products -0. Fertilizers -9. Sulphur & unroasted iron pyrites -1 Transport equipment -17. Exports Table 1 gives major commodity wise growth rate of exports during Apr-Jul 17. Comparing the growth of exports among all the commodities, the exports of oil meals have grown at the highest rate of 79% followed by iron ore by 6%. Within agricultural commodities, exports of cashew, rice, coffee, tea and spices have increased during FY18 (Apr-Jul) as against the export in the comparable period in FY17. On the other hand, exports of tobacco and oil seeds witnessed some contraction in the first four months of FY18. Petroleum and crude oil products exports grew by 0.% while that of gems and jewellery contracted by -1.8% during this period. Imports For manufactured products, exports of engineering goods increased by 1.9% followed by plastic & linoleum products (7.%) and electronic goods (.%). Exports of pharmaceuticals & drugs have decreased by -6.% in FY18 (Apr-Jul). Major commodity wise composition of imports during FY18 (Apr-Jul) has been presented in Table. Among the selected commodities, imports of precious metals like gold and silver have more than doubled owing to increased demand while that of pearls, precious & semi-precious stones grew by 6%. Within agriculture products, imports of edible vegetable oils increased by 8% while that of pulses increased by 16.%.

4 Hong Kong Singapore UK Vietnam Bangladesh Belgium Economics I Foreign Trade Review India being heavily reliant on crude oil imports, the imports of petroleum crude & products grew by 0% and that of coal, coke and briquettes increased by 6% in FY18 (Apr-Jul). Within manufactured products, growth has been witnessed in cotton raw (10%), electronic goods (6%), iron & steel (%), chemical products (%) among others. Transport equipment (-17.%), fertilizers (-9.%), medical & pharmaceutical products (-0.%) and project goods (- 0.%) were some of the commodities that witnessed contraction in the imports in Apr-Jul 17. Direction of foreign trade: major trading partners The direction of trade among top 10 export destinations and import source have been studied below in terms of trading partner s share in FY17 and growth rate in Apr-Jun 17. Major Exports destinations Exhibit : Top 10 export destinations Exhibit : Growth in exports to Top 10 destinations FY18 (Apr-Jun) 1 Hong Kong Singapore UK Vietnam Bangladesh Belgium Note: Share in FY17 Exhibit depicts the percentage share of top 10 countries in FY17 in total exports of India while Exhibit plots growth rate in exports to top 10 countries in FY18 (April-June). These top 10 countries account for around 0% of total exports of India. In terms of growth, exports to Hong Kong and grew by more than % in first months of FY18. Exports to during these three months have grown at 1%. The growth in exports to UK was the lowest among these countries at 0.% followed by Bangladesh (0.7%) and United Arab Emirates (1.8%). Major sources of imports Exhibit 6 depicts the share of top 10 countries in FY17 in total imports of India while Exhibit 7 plots growth rate in top 10 sources of imports in FY18 (Apr-Jun). These top 10 import sources account for around % of Indian imports.

5 Saudi Arabia Switzerland Indonesia Sourth Korea Iraq Australia Economics I Foreign Trade Review The imports from Switzerland have doubled in the first quarter of FY18 followed by Australia, imports from which increased by 8%. Imports from Saudi Arabia grew at lowest rate of.7% among these countries in FY18 (Apr-Jun). Exhibit 6: Top 10 country-sources of imports 16 Saudi Arabia Switzerland Indonesia Sourth Korea 6 Iraq 6 Australia Note: Share in FY17 Exhibit 7: Growth in import of Top 10 import sources in FY18 (Apr-Jun) CARE Ratings View While the exports have grown to a certain extent following the pick-up in the global demand, the imports have also gone up due to increasing oil prices at the international level. Going ahead, the oil prices are expected to remain range bound however, the global demand is expected to continue its momentum. On this background, we expect exports to grow at 8-10% in Higher government spending would provide the impetus for private investments and industrial output on the domestic front. Industrial output is expected to pick-up in the second half of the year resulting in higher demand for imports. This coupled with the firming up of commodity prices would result in imports growing by around 10-11% in The rupee has been strengthening over time which could have at the margin militated against faster growth in exports. With the rupee reining below Rs 6/$, there is concern that any further appreciation would slowdown exports even further. Exporting industries and the IT sector would be particularly affected by this currency movement. CORPORATE OFFICE: CARE RATINGS LIMITED (Formerly known as CREDIT ANALYSIS & RESEARCH LIMITED) Corporate Office: th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: I Fax: care@careratings.com I Website: Follow us on /company/care Ratings /company/care Ratings