India’s exports contracted for the eighth consecutive month in July. Exports were down 10.3% to $ 23.13 billion, owing to a worldwide slowdown, and six-and-a-half year low oil prices that has affected the price of petroleum products. The last time exports expanded was in November, when shipments were up 7.27%.
Oil products form about 31% of the total exports, while petroleum products account for 18% of the total exports.
In the first four months of FY16, exports have declined by 15.04% to $ 89.82 billion, so have imports (down by 12.01%), resulting in a trade deficit of $ 45 billion.
At a time when India’s exports continue to remain a concern, China also devalued its currency by nearly 6% in three tranches last week, to make its own products more competitive in the global market.
Effects of the yuan devaluation were felt world wide, with the dollar firming, gold gaining some ground as safe-haven again, and Asian currencies tanking against the greenback.
On Wednesday, the rupee had plunged to its weakest level since September 2013, on the back of an appreciating dollar on yuan devaluation. The rupee shed 48 paise to 64.67 a dollar, before recovering slightly. This was, however, short-lived, as the Indian currency soon breached the 65-level to a dollar on the Interbank Foreign Exchange.
However, Chief Economic Advisor Arvind Subramanian tried to ease worries about the rupee by saying, “What is happening in China has introduced some amount of volatility. Because our macroeconomic situation is better, this should be seen as a temporary adjustment because our fundamentals are strong.”
Post the currency devaluation, Indian manufacturers and exporters are concerns about two things:
— their exports to China and the rest of the world declining
— dumping of cheaper imports from China
In a bid to ease these conerns, Commerce Minister Nirmala Sitharaman said: “I can assure Indian manufacturers that we shall take every step to protect Indian manufacturing sector, every step to stop dumping of goods into India, we shall safeguard our manufacturing interest.”
She said that the yuan devaluation was a serious concern, and “we are closely monitoring the situation; obviously dumping will not be entertained, where there is an artificial price reduction which is what is happening through China now. We will make sure that safeguard clauses are invoked.”
Engineering and textile exports from India are expected to take a major hit with Chinese goods becoming more competitive, while steel firms fear that cheap imports from the neighbouring country could intensify further.
Engineering exporters’ body EEPC India Chairman Anupam Shah has expressed his worries over the continuous dip in outbound shipments. “Continuous fall in exports is a matter of great concern and the troubles may even increase in the coming months since the global demand remains quite subdued, with the exception of the US markets,” engineering exporters’ body EEPC India Chairman Anupam Shah said.
Steel companies like Tata Steel and JSW Steel have already seen a dip in revenues due to cheaper imports from China and Korea. The yuan devaluation has only further deepened these concerns. JSW Steel chairman Sajjan Jindal has said: “unprecedented surge in imports” is hurting and causing injury to the domestic industry since steel is being sold at a price significantly lower than the domestic home-country prices of exporters.
However, exporters’ body Federation of Indian Export Organisations President S C Ralhan said that looking at the figures for August, he expected outbound shipments to increase in August and going ahead. Rahlan still asked exporters to guard themselves against excessive volatility and hedge their currency risk rather than get swayed away by depreciation of rupee. “The depreciation of yuan, if happen further, may impact expected growth in exports from November,” he said.
The yuan devaluation move is also expected to hurt India’s textile exports. Industry body Texprocil said that the devaluation coupled with an overall slowdown in global demand, will hit textile exports. “The sudden move on the part of China to devalue its currency yuan will have an adverse impact on India’s exports of textiles and clothing, which are facing already sluggish growth due to recessionary conditions in global markets,” Texprocil chairman R K Dalmia said in a statement here.
Dalmia went as far as to pointing fingers to the government for being insensitive to the dip in India’s imports.
Dalmia pointed out that the Chinese government appeared to be more sensitive to the decline in their exports than the Indian government as they had acted with alacrity to arrest the decline in their exports by taking urgent steps like devaluing their currency.
“Our government, on the other hand, regrettably has been unable to appreciate the depth of the decline in our exports and take remedial steps,” Dalmia said. He pointed out that the government has not yet announced the interest rate subvention of 3%, which has been pending despite sanction of funds for this purpose by the Finance Ministry. Dalmia appealed to the government to clear the dues of the industry under the TUF scheme and release additional funds.