Euphoria over July exports surge is a statistical illusion

Real recovery could be assessed from October onwards

While players are gung ho over a rise in merchandise exports by a 21-month high of 11.6 % in July, the rebound came mainly from low base effect which would run till September of this financial year. If exports rise from October stupendously, then the recovery could be called real, say some economists.

"An extrapolative exercise shows that export growth in July was largely due to high base effect. If we remove the base effect from actual export growth, then the incremental growth would be 3.7%, rather than 11.6%," SBI chief economic adviser Soumya Kanti Ghosh said.

In his view, exports will show an increasing trend due to base effect till September, 2013.

When asked how does one eliminate the base effect while calculating the exports growth of a month in a year, he said there are many methods, but the one that he used is that he took July, 2012 exports figures as same as June, 2012 and then see the change in July, 2013.

Exports contracted from May to December last financial year, but the rate of fall was too steep from July to September. Outbound shipments declined 14.8 % in July, 9.7 % in August and 10.8 % in September of 2012. In July, 2012 exports declined to $23.1 billion. In June, 2012, the figure had stood at around $24.92 billion.

When asked about this base effect theory for exports spurt in July, 2013, Director General of Foreign Trade Anup Pujari said the government has not done any analysis for the numbers as these were provisional. When the final figures come, then an assessment will be made, he said.

According to Ghosh, it was only from October onwards that real change in exports could be gauged.

Most players believed that merchandise shipments are likely to recover in the second quarter of the financial year with a pick-up in demand from the US markets, coupled with depreciation of the rupee, giving the much needed competitive edge to Indian exports.

In the first quarter the fiscal, exports fell 1.41% to $72.45 billion compared to $73.49 billion in the same period of 2012-13.

“This quarter will be much better than the first quarter. Even the period from October till March, we expect a much better demand situation. This is because the US is doing very well. All our forward booking for the upcoming winter season has been quite impressive,” said M Rafeeque Ahmed, president, Federation of Indian Export Organisations.

Ahmed said demand was beginning to look much better in the UK and Germany. This is because Chinese goods have turned costlier, he added. “Hence, we are asking our exporters to reduce prices and increase market share. And also, depreciation of the rupee had been somewhat advantageous,” Ahmed added.

Pujari said it is yet to be seen how the rupee will impact exports October onwards. "This is not the first time, that the rupee is depreciating," he said, adding wait for the October figures.

The Apparel Export Promotion Council earlier said garments exports were poised to grow 24 % to $16 billion in the current financial year, owing to a rise in demand in American and European markets.
 
Last month, the government announced some measures to propel the shipments, including raising interest subsidy to three percent from two percent covering newer sectors such as handloom, handicraft, toys, carpets, sports goods, processed food, readymade garments, 200 tariff lines in engineering sector and textile sector among others.

 
However, exporters believe these measures will start showing results gradually.
 
Minister of state for commerce and industry D Purandeswari earlier said due to several reasons such as weak industrial output, the Euro zone crisis and subdued global demand the target of achieving exports worth $500 billion in 2013-14 has been revised down to $325 billion.
 
Exports in July soared 11.6 % to $25.8 billion, compared to $23.1 bn in the same month last year.

This financial year (from April 1), exports fell in May and June, by 1.1 % and 4.6 %, respectively.

The rise in July’s exports was mainly on account of a falling rupee (at an all-time low of 61.81 against the dollar last week), coupled with a rise in demand in America, Africa and East Asia.

“Continuing interest in Africa, Latin America, Asean (Association of Southeast Asian Nations) and the Far East regions is the main reason why exports have risen. We expect this trend to continue,” commerce secretary S R Rao had said.

He said the government’s recent measures to help shipments would also help arrest the earlier fall in merchandise export. Total export in the April-July period reached $98.3 bn, about 1.7 % higher than the $96.6 bn in the corresponding period of 2012-13.

“We expect our exports to do slightly better this year. Although the growth in four months has been a mere two %, our target is much higher, at 10 % for the present financial year,” he added.

In July, export of readymade garments, pharmaceuticals and textiles have been impressive; those of engineering goods and gold jewellery have fallen. Import of pearls, semi-precious and precious stones, transport equipment and fertilisers have risen; those of gold and silver, crude oil and vegetable oil have declined, said Anup K Pujari, director general of foreign trade.

“The market is the US is gaining strength but the EU is still under economic stress. Though we have registered a growth of around 16 % in readymade garments in the US and EU markets, our export diversification in  non-traditional markets and sustained government help has also helped,” said A Sakthivel, chairman, Apparel Export Promotion Council.