Macro-economic forecasts and analysis
Real-time analysis of data releases and copious indicator data
Fiscal 2017-18 has clocked a healthy growth in exports. This is evident in the 10 per cent growth during the year. Serious problems in input credit refunds to exporters following GST has not hampered growth, at least in the aggregate. During 2017-18, non-petroleum exports grew 8.9 per cent and manufactured goods exports grew by 8.3 per cent. Engineering goods and chemicals have done well while readymade garments exports have declined and those of textiles and leather goods have grown by just 2-4 per cent.
It is likely that the poor management of GST has hurt exports. But, this seems to be offset adequately by better performance of other goods.
Fiscal 2017-18 has ended with a robust growth of 10 per cent in exports. However, we expect growth to slow down in the coming years. We expect exports to grow by 4.6 per cent in 2018-19 and then by less than 3 per cent per annum in the following three years.
Indian exports have not recovered from the hit of 2008-09. Exports grew at the rate of nearly 23 per cent per annum for seven years from 2002-03 through 2008-09. Each year saw a double-digit growth during this period. In the next seven years we witnessed four years of decline and an average growth of just 6.6 per cent. Fiscal 2016-17 and 2017-18 saw some pick up in growth rates. But, this is unlikely to pick-up or even continue.
While India is expected to be spared any directly adverse consequences of the rising ogres of trade wars and nationalism, global conditions would not be the best for India to expand exports robustly. Indian exports faces a new obstacle from the US which has challenged India at WTO that it provides undue benefits to exporters. If the challenge prevails India will have to stop export subsidies in nine months.
Besides, India’s own problems such as poor investments into capacity building in recent years, poor implementation of GST and banning of Letters of Undertaking have made it just more difficult for Indian exporters to compete in a hostile world order.
Of the broad commodity groups, we expect engineering goods, and in particular, machinery and instruments, to perform well in the coming five years.
Growth in export of engineering goods has been volatile in the past - ranging from over 50 per cent to -19 per cent in a year. The average growth was about 15 per cent per annum. We expect an average growth of 6.6 per cent per annum in the coming five years. Engineering goods exports is projected to reach USD 96 billion by 2021-22. At this level it is estimated to account for 28 per cent of India’s exports. Its share is currently at 25 per cent which itself is a doubling from its share of about 12 per cent in 1993-94.
Transport equipment, machinery & instruments and metals are the three large components of engineering goods.
We expect substantial fall in the growth of export of transport equipment. Transport equipment exports have been growing at about 5.6 per cent per annum in recent years. We expect this to fall to 3.7 per cent per annum. Growth in automobile components and aircraft parts have weakened.
Machinery and instruments exports grew smartly in 2017-18. We expect these to continue to grow but, at a more modest and tapering rate over the next five years. Nevertheless, growth would continue to remain in double digits. In fact, machinery and instruments would be the fastest growing export category over the coming five years.
Export of metals, led by steel, recorded an impressive near-30 per cent increase in 2017-18. We expect this growth rate to decline sharply in the coming years. This sharp increase in steel exports was largely opportunistic and such conditions are unlikely to last.
Gems and jewellery exports declined during 2017-18. Exports are likely to end up well below USD 42 billion compared to USD 43.5 billion in 2016-17. Growth is expected to remain negligible in the coming five years.
Growth in exports of the chemicals and chemical products picked pace in 2017-18 because of a sharp increase in export of organic and inorganic chemicals. Other components under this group have not done as well.
We expect readymade garment exports to continue to decline in the coming two years. Garment exports were down 3.8 per cent during 2017-18. Further, we expect a sharper fall of 6.6 per cent in 2018-19 and then a near stagnation in 2019-20 before there is some pick up.
Textiles excluding readymade garments, which includes yarn, fabrics and madeups, carpets and jute manufactures is expected to perform better on the export front. Exports of this group has recovered from persistent declines or stagnation in the past three years and recorded growth of 4 per cent in 2017-18. This group is expected to maintain this growth rate for the next 3-4 years. Exports would therefore grow from about USD 17 billion in 2017-18 to about USD 18.5 billion in 2021-22.
Agricultural products’ exports have risen at a good clip this year. Export of basmati rice, marine products and cotton have grown in double digits. Overall agricultural products’s exports grew by 14.9 per cent during 2017-18. We expect growth in export of marine products and to some extent cotton to do well in the coming years. These will outperform agricultural products as a group, which is expected to see a growth of only 2 per cent in the coming years.