Merchandise exports came in at $29.8 billion in October, about 17% lower than in October 2021. In fact, they were down 33% from March’s all-time high of $44.5 billion in merchandise exports.
So, what has caused this big drop? The main reason for this is the huge decline in petroleum exports. India consumes more oil than it produces. In fact, in this financial year so far, India has imported about 87% of its crude oil consumption. In view of this, the country is not in a position to export crude oil. However, it imports crude oil, refines it and then exports petroleum products. In this sense, India’s petroleum exports consist entirely of petroleum products.
Take a look at the accompanying chart. The proportion of petroleum products in total merchandise exports has increased over the past year. From January 2020 to September 2021, petroleum exports averaged less than 11% of total merchandise exports. This is because by September 2021, the price of oil was around $ 70 per barrel.
After this period, oil prices began to rise, and so did the proportion of petroleum exports in overall merchandise exports. In March, when cargo exports peaked, it accounted for about 22% of petroleum exports. This increased to 25% in June. Some of this was the effect of rising oil prices. In March, the Indian basket of crude oil averaged around $113 per barrel, rising to $116 per barrel in June.
In October, petroleum exports fell to 16% as a proportion of total merchandise exports. A simplistic analysis shows that this happened mainly because the price of oil fell from its peak in June and averaged around $92 a barrel in October. But note that oil prices averaged about $91 a barrel in September, when the proportion of petroleum exports was about 24%.
So, what gives?
Europe has emerged as one of the major destinations for India’s petroleum exports during this financial year. From April to September (H1FY23), exports to the continent stood at $8.7 billion as against $3.8 billion during H1FY22. Thus, figures for petroleum exports to Europe in October will be available only when detailed trade data is published next month. Nevertheless, given the near-recessionary economic situation that is now prevailing in Europe, India’s petroleum exports to the continent may have fallen in October. This could play a major role in pulling down total petroleum exports to $4.8 billion in October from a peak of $10.7 billion in June. Of course, the fall in oil prices must have had some impact as well.
In addition to the decline in petroleum exports, India’s non-petroleum goods exports fell 18% year-on-year to $25 billion in October. Compared to the peak exports of non-petroleum goods of $34.7 billion in March, it declined by 28%. A closer look at the data reveals that in October, exports of engineering goods, India’s other big export, fell 21% year-on-year to $7.4 billion. Exports of readymade garments also fell by nearly 21% to $988 million.
This leads broadly to two conclusions. First, the impact of the economic slowdown in the prosperous western world has started showing in exports of Indian goods. Second, because of the first reason, the theory that a weaker rupee will help export goods doesn’t really hold. Also, many importers push for better prices when the currency of the exporting country depreciates against the dollar.
To conclude, India’s merchandise exports are likely to decline further in the coming months as the situation turns from bad to worse in the rich world economies. And this is a matter of concern.
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