India’s merchandise exports sector appears to be on steroids, defying even the logic of an economic slowdown. At a little over $8 trillion, global exports in the first half of 2011 grew by 22 per cent. Compared to that, India’s exports of merchandise goods, estimated at $153 billion in the same period, grew by a staggering 44 per cent. That’s not all. India’s exports gained fresh momentum during the third quarter of 2011, when the growth rate jumped to 54 per cent, proving wrong even the government’s forecasts of an exports slowdown from August onwards. Economists are also at pains to explain the apparent disconnect between a tepid industrial growth rate witnessed during this period and the robustness of its merchandise exports. Industrial growth during the first five months of the current financial year is down to 5.6 per cent, from 8.7 per cent in the same period in 2010-11. So, what is fuelling India’s exports growth?
The Indian rupee depreciated by around ten per cent in the last few weeks. This might somewhat help exports remain buoyant in the months to come, but it does not explain the boom in the last nine months, when the Indian currency showed no such weakness. Information trickling out from Udyog Bhavan also suggests that the exports boom in the last nine months has been largely driven by two sectors — engineering goods and petroleum products. To be sure, the emergence of the two top foreign exchange-earning categories in India’s exports basket is not a sudden development. In the five years ended March 2011, engineering exports recorded a compound annual growth rate (CAGR) of 26 per cent, more than double the CAGR of 12 per cent for manufactured goods (excluding engineering products) in this period. Petroleum product exports saw an even higher CAGR, 29 per cent. The growth in petroleum product exports is easily explained by the recent commissioning of new refining capacity and the steady rise in petroleum product prices. The puzzle, however, is with engineering exports, where data on exports by top companies do not bear out a rise that contributed as much as 55 per cent of the total rise in manufactured goods exports in the five-year period. It is, of course, possible that the rise in engineering goods exports is largely fuelled by small- and medium-sector engineering companies. However, for want of definitive data, this explanation too remains in the realm of speculation.
The absence of an official explanation of the export numbers has fuelled speculative theories about dubious methods being used by India Inc to show an artificially exaggerated performance on the exports front. Reports suggest there has been a sharp rise in exports to countries better known as tax havens, which are then used as a convenient route for recycling back unaccounted wealth stashed away there through over-invoicing and other questionable means. The government has also not dispelled doubts about the robustness of trade data, which critics allege suffer from double-counting of exports through special economic zones. Addressing data infirmities is a long-term challenge and the government must not shy away from it. In the short term, however, it should consider removing the veil of secrecy over disaggregated trade data as and when they are collected. There is no reason there should be a time lag of almost a year before disaggregated trade data are available to all.