Lower commodity prices led to a decline in exports: Ind-Ra

Country's merchandise exports have fallen by 16% in US dollar terms over the 12 months ended November 2015

The fall in agri commodity exports from India can be attributed to sharp decline in their prices in global markets, says India Ratings and Research (Ind-Ra) in its latest report.

"India's merchandise exports have fallen by 16.1 per cent in US dollar terms over the 12 months ended November 2015, however the contraction in the exports (in US dollar terms) is not reflective of the actual weakness in volumes but mainly driven by the fall in global commodity prices and the sharp weakening of the euro (averaged 16.6 per cent lower yoy)," Varun Awtani, Analyst (Corporates), Ind-Ra.

About three fourths of the decline is on account of a decline in exports of crude oil and its products and agri-commodities' prices lowering.

 

A sharp decline in commodity prices has depressed the prices of many intermediate and manufactured goods leading to a decline in the value of exported items. The recent commentary by the ministry of commerce on the fall in merchandise exports not being a cause for panic mirrors the fact that demand conditions for corporates in India's export sector are not as bad as feared.

Although global demand conditions remain sluggish, export volumes may not have fallen significantly. Demand conditions in Asia, Organization of the Petroleum Exporting Countries (OPEC) and Africa have been hurt by falling commodity prices, moderating domestic demand and volatile exchange rates; however those in western countries such as Europe and US continue to be supportive.

The ministry of commerce and industry in its recent communication cited that apart from petroleum products and gems and jewellery items India's exports have not declined significantly.

Although several sectors have shown declines, some have shown increase, namely readymade garments and pharmaceuticals. Automobile export volumes have also continued to increase (April-November 2015: 2.2 per cent, FY15: 14.9 per cent, FY13: 7.3 per cent). The limited impact on export volumes is also reflected in the index of industrial production for the period April-October 2015, which grew by 4.8 per cent compared to 2.2 per cent in the same period last year, suggesting that manufacturing activity continues to grow.

The nominal income growth of corporates in most exporting sectors however will remain depressed, due to the deflationary impact of falling commodity prices (World Bank non-energy price index fell by 17.4 per cent yoy as of end November 2015).

Also, most Indian corporates that have exposure to Europe may be unable to increase product prices to offset the decline in margins caused by the depreciation of the euro due to stiff competition from other Asian exporters. The agency therefore believes that the credit profile of exporting corporates is unlikely to improve even in those sectors which are witnessing modest demand growth.