COMMENTARY

in international commodity prices, in

Recent Trends in Indias particular, oil. Since this steep fall started
in June 2014 following a period of rela-
Merchandise Trade tive stability, oil prices between Decem-
ber 2014 and June 2015 have been sub-
Warning Signs for the Economy stantially below those in the same period
a year ago. However, oil is far more sig-
nificant on the import side of Indias
Surajit Mazumdar foreign trade and therefore the fall in
oil prices has had a greater contribution

F
The contraction of Indias or an economy which, just about to the reduction in imports than that
merchandise trade, both exports two years ago, had a current in exports.
account deficit close to 5% of its The non-oil trade deficit is, in fact,
and imports, from December 2014
gross domestic product (GDP) despite a nearly 2.7 times larger than that in the
is a worrying development, even substantial surplus in invisibles trade, the corresponding period of the previous
if it has led to a temporary effects of Indias merchandise trade since year, undoing a large part of the decline
improvement in trade balance. December 2014 on her trade balance might achieved last year (Table 2). Non-oil im-
appear to be a sign of improving economic ports in this period have actually in-
The substantial decline in
health. For the seven-month period includ- creased by over 6.6%. On the other
international oil prices, and its ing and up to June 2015, the trade deficit hand, non-oil exports have contracted
direct impact on value of trade, has been less than for the corresponding by almost the same degree 6%.
explains this fall only partially. period of the previous year. Indeed this has Clearly, therefore, there is more to
been true for almost every month if these Indias shrinking trade story than the
An analysis of the figures tends
are considered individually. However, what direct effects of oil price trends on the
to confirm the persistence of puts a damper on this achievement is the value of trade, particularly in view of the
industrial stagnation rather than fact that it is not only the deficit but trade fact that it comes in the wake of a three-
a revival of growth in Indian itself which has shrunk. For seven months year spell during which trade growth
running the rate of growth of both exports was already poor.
manufacturing, and suggests that
and imports (in dollars) has been in nega- Among non-oil imports gold of course
this tendency is being reinforced. tive territory (Table 1)which could be plays an important role. While gold im-
considered rather paradoxical if we are to ports in June 2015 have been lower than
accept the claims that Indias growth is re- in the same month the previous year, the
covering and making her the fastest grow- aggregate value of gold imports (includ-
ing major economy in the world. ed under gems and jewellery in Table 3,
p 15) over the previous six months (De-
Not Just About Oil Prices cember 2014 to May 2015) showed a
The reduction in the value of trade year-on-year growth of nearly 47%. This
reflects, partly of course, the sharp decline was despite the fact that international
Table 1: Indias Merchandise Trade, December 2014 to June 2015 ($ million)
Month/Period Exports Imports Trade Balance
Value Percentage Value Percentage Latest Previous
Change over Change over Year
Previous Year Previous Year
December 2014 26,126.82 -1.01 35,255.62 -3.62 -9,128.80 -10,187.03
January 2015 24,370.26 -9.38 32,108.61 -11.66 -7,738.36 -9,454.75
February 2015 21,866.55 -13.75 28,276.75 -16.01 -6,410.20 -8,312.31
March 2015 23,884.45 -21.28 35,703.90 -13.54 -11,819.45 -10,953.43
April 2015 22,091.66 -15.14 32,973.35 -7.88 -10,881.69 -9,760.73
May 2015 22,263.17 -20.48 32,690.12 -16.30 -10,426.95 -11,059.85
June 2015 22,289.43 -15.82 33,116.55 -13.40 -10,827.12 -11,763.24
December 2014January 2015 1,62,892.33 -14.04 2,30,124.91 -11.82 -67,232.57 -71,491.35
Source: Reserve Bank of India, Real Time Handbook of Statistics on the Indian Economy (www.rbi.org).

Table 2: Indias Oil and Non-Oil Trade, DecemberJune ($ million)

Period Exports Imports Trade Balance
Oil Non-Oil Oil Non-Oil Oil Non-Oil
December 2014June 2015 20,780.36 142,112 56,391.28 1,73,733.6 -35,610.9 -31,621.7
Surajit Mazumdar (surajit.mazumdar@gmail.
December 2013June 2014 37,326.87 1,52,162.8 97,058.43 1,63,922.5 -59,731.6 -11,759.8
com) teaches at the Centre for Economic
December 2012June 2013 36,044.27 1,45,844.5 94,932.73 1,95,480.9 -58,888.5 -49,636.4
Studies and Planning, Jawaharlal Nehru
December 2011June 2012 31,407.67 1,46,908.4 95,002.78 1,87,008.7 -63,595.1 -40,100.3
University, New Delhi.
Source: Reserve Bank of India, Real Time Handbook of Statistics on the Indian Economy (www.rbi.org).

14 AUGUST 15, 2015 vol l no 33 EPW Economic & Political Weekly

 COMMENTARY

gold prices have also been on a down- for different commodities. Export grown significantly mainly due to the
ward trend since 2012 and on an average growth to all categories of countries surge in imports of the one item domi-
were lower in December 2014May 2015 developed economies, Organization of nating its exports to Indianamely gold.
as compared to December 2013May the Petroleum Exporting Countries
2014. In other words, the easing of re- (OPEC) and developinghas been poor Comforting or Worrying Signs?
strictions on gold imports towards the and usually negative. Only Malaysia and A claim can of course be made that Indias
end of 2014 clearly has had an impact in Sri Lanka are exceptions but in their case trade trends reflect precisely the fact of
restoring the levels of such imports. the export growth figures are based on Table 4: Indias Exports to Major Destinations,
The positive growth in imports in this only one or two specific items. Imports DecemberMay ($ million)
Country December 2013 December 2014 Percentage
period, however, has not been limited to from the members of the OPEC too have May 2014 May 2015 Change
gold and has characterised other prod- contracted significantly, reflecting quite Developed
ucts too including most manufactured obviously the fall in oil prices. UK 5,145.73 4,574.54 -11.10
Germany 4,026.52 3,644.15 -9.50
products (Table 3). What is striking, However, imports from developed
Netherland 3,309.50 2,616.28 -20.95
however, is that export growth between countries and East Asian developing
Belgium 3,274.73 2,558.84 -21.86
December 2014 and May 2015 was nega- economies, from which India tends to
France 2,511.70 2,517.64 0.24
tive or subdued over a wide range of import manufactured products, have ex- Italy 2,792.75 2,248.42 -19.49
products including in many commodity panded. Included in this category of Japan 3,314.33 2,188.32 -33.97
groups showing growth of imports. The countries with whom the two sides of US 20,179.92 20,624.92 2.21
few exceptions typically account for a Indias trade have tended to move in the East and South East Asia
small share in these exports. The manu- opposite direction are the US and China. Hong Kong 6,138.77 5,898.78 -3.91
facturing trade balance thus has clearly The former is the largest individual buyer China P Rp 8,017.37 5,659.12 -29.41
Singapore 5,449.06 4,072.50 -25.26
moved in an adverse directionin most of Indian exports and the latter the most
Malaysia 2,322.53 3,253.18 40.07
manufacturing commodity groups the important source of imports. The signi-
Vietnam 2,965.89 2,616.36 -11.78
deficit has increased compared to a year ficant exception on the import side is Korea Rp 2,194.69 1,907.57 -13.08
ago while the two in which exports Germanyimports from this important OPEC
exceed importstransport equipment and source of a diversified set of capital UAE 16,656.81 15,662.11 -5.97
textileshave experienced a shrinkage goods have come down. Imports from Saudi Arabia 6,219.98 3,643.81 -41.42
of the surplus. Belgium too have reduced, but this is Developing
Sri Lanka DSR 2,779.24 3,664.79 31.86
The movements in Indias trade with mainly on account of contraction in the
Bangladesh 3,692.69 3,000.80 -18.74
her major trading partners during the imports of precious stones which domi-
Turkey 2,772.41 2,327.70 -16.04
period December 2014May 2015 nate Indias imports from that country. Brazil 3,620.61 1,920.73 -46.95
Table 4 and Table 5 (p 16) are also large- Switzerland represents the contrasting South Africa 2,277.28 1,886.01 -17.18
ly as should be expected given the trends pictureimports from that country have Source: DGCIS (accessed from http://commerce.nic.in/ftpa).

Table 3: Exports, Imports and Trade Balance by Commodity Groups, December 2014May 2015 ($ million)
Commodity Exports Imports Trade Balance
December 2013 December 2014 Percentage December 2013 December 2014 Percentage December 2013 December 2014
May 2014 May 2015 Change May 2014 May 2015 Change May 2014 May 2015
1 Plantation 821.35 755.87 -7.97 467.79 415.47 -11.18 353.56 340.40
2 Agri and allied products 17,326.91 14,072.27 -18.78 7,537.45 8,603.77 14.15 9,789.46 5,468.50
3 Marine products 2,440.55 2,199.13 -9.89 35.42 42.51 20.02 2,405.13 2,156.62
4 Ores and minerals 1,855.95 1,122.13 -39.54 12,650.12 12,990.20 2.69 -10,794.17 -11,868.07
5 Leather and leather manufactures 3,048.96 2,883.02 -5.44 479.06 537.37 12.17 2,569.90 2,345.65
6 Gems and jewellery 20,102.62 18,863.39 -6.16 25,717.94 28,241.27 9.81 -5,615.32 -9,377.88
7 Sports goods 126.62 115.18 -9.03 95.65 99.57 4.10 30.97 15.61
8 Chemicals and related products 16,143.28 15,953.59 -1.18 17,221.99 17,723.65 2.91 -1,078.71 -1,770.06
9 Plastic and rubber articles 3,592.88 2,927.70 -18.51 6,670.51 6,708.06 0.56 -3,077.63 -3,780.36
10 Articles of stone, plaster, cement, asbestos, mica or
similar materials; ceramic products; glass and glassware 1,958.45 2,004.74 2.36 1,046.41 1,208.77 15.52 912.04 795.97
11 Paper and related products 1,040.17 1,136.19 9.23 3,870.53 3,514.91 -9.19 -2,830.36 -2,378.72
12 Base metals 11,936.99 12,072.17 1.13 11,036.95 13,284.65 20.37 900.04 -1,212.48
13 Optical, medical and surgical instruments 800.89 805.20 0.54 2,126.57 2095.93 -1.44 -1,325.68 -1,290.73
14 Electoronics items 3,441.27 2,839.08 -17.50 15,672.16 18,404.43 17.43 -12,230.89 -15,565.35
15 Machinery 9,534.54 9,899.70 3.83 15,390.40 16,469.46 7.01 -5,855.86 -6,569.76
16 Office equipments 13.73 31.91 132.41 83.63 77.64 -7.16 -69.90 -45.73
17 Transport equipments 13,143.10 13,367.58 1.71 7,323.67 8,359.72 14.15 5,819.43 5,007.86
18 Project goods 20.93 20.73 -0.96 2,055.46 1,850.21 -9.99 -2,034.53 -1,829.48
19 Textiles and allied products 20,726.29 19,079.71 -7.94 2,334.75 2,454.03 5.11 18,391.54 16,625.68
20 Petroleum crude and products 31,158.67 17,894.82 -42.57 83,710.00 47,714.90 -43.00 -52,551.33 -29,820.08
21 Others 3,431.49 2,558.81 -25.43 7,158.81 6,211.82 -13.23 -3,727.32 -3,653.01
Total 1,62,665.66 1,40,602.94 -13.56 2,22,685.28 1,97,008.33 -11.53 -60,019.62 -56,405.39
Source: DGCIS (accessed from http://commerce.nic.in/ftpa).

Economic & Political Weekly EPW AUGUST 15, 2015 vol l no 33 15

COMMENTARY

India buckling under the continuing that, one might need to see Figure 1: Value of Selected Indian Imports, 201112 to 201314 ($ million)
trend of a subdued global economy, a Indias recent foreign trade 2,00,000 Manufactured products
1,72,122.1
172122.1
trend that is now increasingly on account trends within a longer-term 1,66,847.7
166847.7 1,53,579.2
153579.2
1,60,000
of weakening growth in emerging econo- perspective.
mies. The depressed global demand con- For soon after the turn of 1,20,000
ditions and the consequent fall in oil prices the century Indian exports Gold
80,000
could be said to have worked in tandem started growing very rapid-
to pull down the levels of Indian exports. ly and this was accompanied 40,000
On the other hand, the fall in oil prices by significant shifts in the
0
have reduced the oil import bill signifi- commodity composition of 201112
2011-12 201213
2012-13 201314
2013-14
cantly which has more than cancelled Indian exports. The share of
out the pick-up in non-oil imports gener- Indias traditional labour-intensive exports rising manufactured imports. It was
ated by economic expansion in India. like gems and jewellery, textiles and then that gold imports started rising as
Reconciling these two elements of the leather manufactures declined as exports asset demand switched direction, shift-
argument, however, would in effect re- of more capital-intensive products pro- ing away from productive investment.
quire acceptance of a rather strange con- duced by chemical and engineering in- This and increases in international pric-
clusionnamely, that a depressed global dustries as well as petroleum refineries esof both gold as well as oiland the
economic scenario in fact suits India, at increased (along with primary commod- slowing down of exports of goods as
least for some period of time! In other ities like iron ore). This factor was per- well as services resulted in continued
words, Indian growth has virtually no haps an important role in triggering the pressure on the current account. Inter-
dependence on export demand to sustain investment boom that characterised the national oil prices, however, stabilised
itself and the only effect of the global phase of high growth India witnessed by 201112 and thereafter the growth of
economic situation is that it allows India before the global crisis of 2008. the deficit in oil trade was checked and
to expand the imports needed for that The faster growing developing and the subsequent free-fall of these prices
growth without facing a balance of pay- OPEC countries also increased in impor- from June 2014 brought this deficit
ments problem. tance as destinations of Indian exports down sharply.
Unfortunately, however, the truth at the expense of the advanced OECD Nevertheless, the squeeze in im-
might not be that simplein addition to economies. Even as exports grew im- ports of gold as well as of other non-oil
depressed levels of demand globally a ports grew even faster as a result of items also had to play an important role
similar situation within the Indian which the trade deficit widenedby in bringing down the trade and current
economy may in fact be underlying the 200708 it was already over 7% of GDP, account deficits in 201314. The question
trends in Indian trade. To understand increasing by about 5 percentage points iswhy did the other non-oil imports, in
in the space of just five years. The rapid particular manufactured products, start
Table 5: Indias Imports from Major Countries of
Origin, DecemberMay ($ million) growth of Indias services exports and falling and that too not after 201213 but
Country December 2013 December 2014 Percentage remittances over the same period mod- earlier? The most plausible explanation
May 2014 May 2015 Change
erated the effects of the trade deficit on is the industrial slowdown that set in from
Developed
Switzerland 4,978.13 5,671.44 13.93 the current account balance. the second half of 201112leading to a
Germany 4,384.20 3,890.83 -11.25 The surge in imports was initially led reduced demand for imports (Figure 1).
Belgium 3,686.99 3,162.15 -14.23 primarily by manufactured products It is from these previously reduced
Japan 2,970.24 3,479.71 17.15 which was indicative of the increasing levels of manufactured imports there-
US 6,449.39 6,887.60 6.79 import-intensity of Indian production fore that the recent increases have taken
Australia 3,194.89 3,360.20 5.17 particularly in the manufacturing sector place. Compared to the earlier decline
East and South East Asia which was both growing rapidly and this growth is modest and additionally
China 16,416.84 20,053.44 22.15
was also the sector absorbing the largest pales in comparison to the parallel spike
Malaysia 3,050.96 3,314.54 8.64
Korea Rp 4,077.18 4,384.48 7.54
part of the rapidly growing corporate in gold imports. Moreover, import growth
Singapore 2,206.06 2,304.27 4.45 investment before the global crisis. In is often high where they are competitive
Indonesia 5,039.26 4,928.64 -2.20 other words, the trend till the global with rather than complementary to Indian
OPEC crisis was reflective: first, of the increas- productiona case in point is steel in
UAE 8,633.55 6,837.29 -20.81 ing trade (import as well as export) whose case domestic producers have
Iraq 5,377.03 3,653.24 -32.06 dependence of Indian manufacturing; been crying themselves hoarse about
Venezuela 4,427.68 2,933.96 -33.74
and second, that the international com- being run over by cheap imports, induc-
Qatar 5,636.35 3,587.53 -36.35
petitiveness of Indian manufacturing ing the government to raise import du-
Nigeria 5,063.92 3,013.75 -40.49
had a relatively narrowly spread. ties. These trends can hardly be consid-
Saudi Arabia 12,455.16 7,043.18 -43.45
Kuwait 5,082.78 2786.99 -45.17
The post-crisis collapse of investment ered to be indicative of a significant in-
Iran 4,448.70 1,820.50 -59.08 and slowdown of industrial growth had dustrial revival and this is consistent
Source: DGCIS (accessed from http://commerce.nic.in/ftpa). served to check the trend of sharply with the trends exhibited by the Index of
16 AUGUST 15, 2015 vol l no 33 EPW Economic & Political Weekly

Industrial Production (IIP). Moreover,
even the new GDP series does not show
any significant pick-up in investment,
and while it suggests that value added
growth in manufacturing has increased
the same does not necessarily hold true
for the value of output.
Thus, there is sufficient cause to be
concerned about the effects of global
Economic & Political Weekly EPW AUGUST 15, 2015
economic conditions on the Indian econ-
omyits adverse effects on export growth
(now extended to services) and the in-
tensification of import competition. This
can only add to the domestic factors con-
straining manufacturing growth in India.
These effects are being masked by the
improvement in trade balanceone lem of trade deficit which has been among
which is based neither on an expansion
vol l no 33
COMMENTARY
of exports nor on a replacement of im-
ports by domestic production. It is at best
a temporary reprieve heavily dependent
on low international commodity prices
and restrained domestic output and in-
vestment growth scenario. It does not
reflect a structural solution to the prob-
the hallmarks of the Indian economy.
17