At a time when China, the world’s fastest growing economy till recently, has opted for the lowest economic growth target in over 25 years, pegging it at 6.5% in 2017-18, India’s GDP has grown at a healthy 7% in the fiscal third quarter belying grim forecasts inspired by the impact of demonetisation.
It is a different thing that experts doubt the data based on which the Central Statistical Organisation (CSO) has compiled the GDP growth figures. The bone of contention is the industrial output data. According to CSO’s National Income Statistics, the industrial output has grown 8.3% in the third quarter of 2016-17 over the same period of the previous year. But CSO’s own estimates of index of industrial production put the growth rate of industrial output at about one per cent only during this period. In fact, industrial output declined in two of the three months in the third quarter. During the first nine months of 2016-17, between April and December, industrial output grew just 0.3%.
The US-based rating agency has termed the 7% GDP growth for the October-December quarter as surprising. “This number looks somewhat surprising, as real activity data released since demonetisatiomn pointed to weak consumption and services activity because these transactions are cash-intensive,” the agency has observed. Interestingly, even as Fitch has shown surprise on 3rd quarter GDP data, it has appeared upbeat about the next fiscal, predicting a 7.7% growth next year.
But if experts doubt the industrial output figures, there is a near consensus that India, after a long time, has begun doing well in the foreign markets. India’s merchandise exports have grown for five consecutive months on the back of stronger commodity prices despite increasing trade barriers in the form of higher duties and anti-trade sentiments in Europe and the United States.
Aggregate goods exports rose 4.32% to $22.12 billion in January 2017 compared to $ 21.20 billion in the same month a year ago. In rupee terms, merchandise exports grew 5.61% during the same period from `1.42 lakh crore to `1.51 lakh crore.
The cumulative value of merchandise exports during the first ten months of 2016-17, between April 2016 and January 2017, were estimated at $ 220.92 billion (`14.84 lakh crore) compared to $218.53 billion (`14.20 lakh crore). That is, exports grew by 1.1% in dollar terms and 4.5% in rupee terms during this period.
What is significant is that despite growing protectionism in the US and Europe, India has maintained a positive growth trend there. According to the World Trade Organisation (WTO) data, India’s exports to the US increased by 2.63% in November 2016 compared to the same month of the previous year. Exports to the European Union and Japan increased by 5.5% and 13.4%, respectively, during this period. Exports to China, however, declined by 1.5% last November.
That exports to China have declined is not surprising as this has been the story for over half a decade now. Exports to China have declined steadily over the years against an increase in imports raising India’s trade deficit against China.
However, the good news is that India’s exports have grown for the fifth straight month narrowing down the trade deficit to $ 9.8 billion in January from $10.4 billion earlier. To note, India’s exports declined for 18 consecutive months till May 2016. Trade deficit is the difference between what a country earns through exports and how much it spends for importing goods and services. A narrowing trade deficit is a welcome development for India, which had witnessed a sharp rise in current account deficit only recently.
The trade deficit in January would have been even lower but for a sudden rise in imports. Imports in dollar terms grew by 10.7% to $ 31.95 billion in January 2017 from $ in 28.86 billion in the same month last year. Imports grew by just about 0.46% in December 2016 compared to the same month in the previous year. Imports in rupee terms have increased 12.07% last January. Much of this rise was accounted for by sharp increase in oil import bill – up 61.07% in January 2017 from $ 5.05 billion to $ 8.14 billion in January 2016.
The cumulative value of imports during April-January, have however, grown at a considerably lower rate of 5.51% in dollar terms and 2.57% in rupee terms compared to the corresponding period of the previous year.
But in spite of the recent rise in exports the question that is going round is: Can India sustain the current export buoyancy? The worry is that the WTO has lowered the trade growth projection for 2017. According to WTO global trade growth should hit 3.6%; considerably lower than the average 5% growth since 1990.
India has other problems to bother about. The EU countries that account for about a sixth of India’s exports are facing problems of stagnation and deflation. The appreciation of rupee against the euro has adversely impacted India’s exports to the EU block.
The recent developments in India’s other big export markets is also causing concern. The US President Donald Trump’s ‘America First’ trade policy as also Britain’s surprise vote to leave the European Union last year have clouded India’s export outlook. Further, with elections due in a number of euro zone countries including Germany, France, Bulgaria, Hungary and Portugal this year there are little chances of letting up in protectionist rhetoric. Finance Minister Arun Jaitley has already warned that a popular backlash against globalisation is a major risk for the nascent recovery in Indian exports.
Analysts back India have, however, sounded upbeat over the country’s recent export performance, suggesting that the increase has been far more broad based this time and the narrowing down of trade deficit is an encouraging sign. As many as seventeen out of 30 major commodities have posted positive growth in exports, indicating broadening of export growth – key sectors posting positive growth in January were food products, engineering goods, iron ore, marine products, yarn and petroleum products.
India’s steel exports registered a three-fold increase in January this year backed by the government’s support to the sector by way of various trade remedial measures including anti-dumping. India shipped out 5.865 MT in the first 10 months of the current fiscal registering an increase of 71% compared to the same period last year.
As for the future, Nomura, a Japanese financial holding company has appeared upbeat. According to Nomura, the recent rise in the export orders index of the manufacturing PMI to 50.7 in February from 49.8 in January suggests this turnaround in exports growth should continue over the near term.