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India’s Merchandise Exports Limp Along Even as Global Trade Picks UpMonday, December 04, 2017 > 11:41:38
India’s merchandise exports have turned negative in October, with a surprising 1.12% drop, and are expected to fall further in November as exporters turn away clients and new orders due to the difficulty of complying with the Goods and Services Tax (GST) regime.
The fall in exports comes at a time when global trade is booming.
As per the latest forecast by the World Trade Organisation (WTO), global trade is likely to grow by 3.6% in 2017, up from the lacklustre 1.3% growth in 2016. The strong performance of world trade in 2017 is attributed to the resurgence of Asian trade flows and recovery of import demand in North America.
The timing of India’s export drop is equally perplexing given that the WTO upgraded its earlier world trade growth forecast of 2.4% on September 21. Experts say that the the decline is also surprising given that exports are usually strong in the months leading up to Christmas as retailers in Western markets build stocks.
India’s October export performance contrasts with those of its Asian trade rivals like Bangladesh, Vietnam and China who reported positive growth. Vietnam reported nearly 21.3% growth in monthly exports, China nearly 7% and Bangladesh 6.4% during the month.
India had reported impressive export growth of 25.67% in September. The precipitous drop in the October exports shows that the feared disruption in MSME supply chains has now started taking its toll on the country’s export performance.
Exports from labour-intensive industries, such as textiles, gems and jewelry and leather and leather goods have reported steep drops in October.
Decline in dollar value of exports from labour-intensive sectors in October 2017
Sector %decline in exports
- Gems and Jewellery 24.51
- Readymade garments 39.23
- Leather and leather products 9.81
- Man-made yarn/fabrics/made-ups, etc 5.91
- Carpet 31.32
The ready-made garment sector reported a 39% drop in dollar export earnings during October, the gems and jewellery sector nearly 25% and leather and leather goods about 10%. All these sectors are dominated by MSMEs.
The sectors that have bucked the trend and reported positive export growth during October are engineering goods, petroleum products and organic/inorganic chemicals. These sectors are highly capital intensive and dominated by big corporate players who have better managed GST compliance and escaped unscathed from demonetisation.
Garment exporters say their export competitiveness has fallen due to the increase in working capital requirement and reduction in incentives. As per industry estimates, Indian garment exports have been 8-10% costlier in the wake of the GST. This is also impacting exporters’ margins in addition to sales volumes.
Industry sources say that exporters are not able to pass on the increased cost to customers as they are getting tough competition from suppliers from countries like Bangladesh, Vietnam, Sri Lanka and Cambodia, some of which are also enjoying duty-free access to the EU market which gives them 5% head start. As a result, India exporters’ cost disadvantage works out to 13-15% in the final analysis.
Merchandise export growth in select countries during October 2017
Country % export growth
- India (-1.12)
- Bangladesh 6.4
- Vietnam 21.3
- China 6.9
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