Robust numbers hide weak export growth

The buoyancy in exports, which are expected to grow 23 per cent to around $155 billion in 2007-08, does not convey the real picture.

Commerce ministry data show that the sectors with higher import content like petroleum products, gems and jewellery, engineering goods, pharmaceuticals, chemicals, and agriculture have provided the momentum for growth in exports, which have been hit by the appreciation of the rupee and infrastructure bottlenecks.

"The real benefit to the economy is when sectors with less import content like textiles, handicrafts and leather show a higher export growth instead of petroleum products or gems and jewellery where the import content is high," said Rajesh Chadha, senior fellow, National Council of Applied Economic Research.

Between April and November 2007, exports of engineering goods, which have the highest share in the Indian export basket (20.57 per cent), rose by 23.7 per cent to $20.57 billion, providing a strong push to the overall growth. But exporters say there is no cause for celebration.

"The price of steel in India has risen by up to 35 per cent in the past 11 months. As a result, exports (from the sector) have risen in value terms as realisations have increased because of the escalating cost of the raw material. In volume terms, the exports are down," said Rakesh Shah, chairman, Engineering Goods Export Promotion Council. The industry's 80 per cent raw material cost is accounted for by iron and steel.

"More than the appreciation of the rupee, we have been hit by exorbitant steel prices. We should have recorded a 40 per cent increase in exports in 2007-08, but will do only about 20 per cent. This too with lesser volumes," Shah added.

Significantly, the other engineering goods category "" ferro alloys, non-ferrous metals and aluminum "" registered an export growth of 24.79 per cent ($7.29 billion). The sector's share in the country's overall exports is about 7.26 per cent.

The export of petroleum products, whose share in the export basket is 17.28 per cent, rose 35 per cent to $17.37 billion during April-November 2007.

Commerce ministry officials point at increasing prices of crude oil, which recently stood at $102 a barrel (an annual increase of nearly 36 per cent).

"This increases the realisation on finished petroleum products and thus contributes to overall growth," said an official.

Moreover, the starting of Essar's Vadinar refinery and enhanced exports by Reliance Industries have added to the export momentum. India imports more than 70 per cent of the crude oil it uses.

The slashing of the import duty on diamonds last year has led to an increase in imports for further exports.

"Value addition in the sector is not pushing exports," said Sanjay Kothari, chairman, Gems and Jewellery Export Promotion Council.

The sector, which accounts for 13 per cent of the Indian export basket, registered 25.13 per cent growth (to $13 billion) in April-November 2007.

Chemical and related products are also giving a fillip to overall exports. "China has withdrawn most subsidies given to the industry. In addition, hundreds of units have been shut down in the last one year due to the strict pollution control norms the country has to adhere to, to host the Olympics. As a result, Chinese competitiveness in these products has been coming down," said Satish Wagh, chairman, Basic Chemicals, Pharmaceuticals and Cosmetics Export Promotion Council.

Farm products, whose share in the export basket is 7.36 per cent, also contributed with an annual increase of 39.17 per cent ($7.39 billion).