· Limited impact of demonetization on exports in Q4 2016
· Growth in 2017 is expected to be in double digits provided India keeps growing into markets such as Middle East, East Africa and Latin America, expanding its customer portfolio and diversifying risks.
MUMBAI: As per the World Bank’s Global Economic Prospects report, global trade growth in 2016 was the weakest since the 2009 global financial crisis. Despite that, India performed well and consolidated its position with the global containerised trade. The export-import container trade volume grew by 10% for the full year 2016, which was double of 2015. Trade growth was also more balanced across both exports and imports as against 2015, where import volumes grew four times faster than exports.
Although, the demonetisation exercise that happened in November 2016 was expected to cause disruption in the export-import trade, the impact was limited to the exports of select commodities especially the ones that rely on cash for trading.
“India’s export-import trade growth was due to strong surge in exports and a consistent increase in imports owing to a series of economic reforms undertaken by the Government, increase in domestic demand and improved performance by key sectors such as textiles, agriculture, pharmaceuticals, and automobiles”, says Mr. Franck Dedenis, Managing Director – India, Sri Lanka & Bangladesh Cluster, Maersk Line.
While exports to the US and UK remained consistent, it was the increase in demand for Indian products from countries such as Saudi Arabia and Kenya that contributed to the overall export growth of 11%. Imports saw a 10% growth overall. Although China remains the largest trading partner clocking 19% year on year growth in 2016, it was volumes from South Korea that registered the highest growth in imports at 41%.
The findings of this study are based on the economic indicators gathered by Maersk Line, world´s largest container shipping company, during the compilation of its Annual India Trade Report – 2016.
Exports: Opening up to new markets
Indian exporters continued to tap into new markets in 2016. While North America and Europe are strategic markets for India and saw growth, exporters increased focus on Middle East and East Africa and expanded into new markets such as Central America.
Saudi Arabia clocked highest volume growth at 16% on the back of strong demand for ceramics and tiles, which grew at 80% in 2016. Increase in construction activities and redecoration of homes due to an improvement in the Saudi Arabian economy were the key reasons for this demand. “While the demand for stones in Saudi Arabia increased, shipment from other suppliers like Spain and China dipped. Small scale Chinese companies focused on upgrading their production units, which increased prices making India more cost competitive last year. Spain, on the other hand, shifted its production base to Morbi belt in India, which also resulted in increased supply from India”, pointed Franck Dedenis.
Kenya was the second fastest growing destination registering a growth of 14% due to increase in demand for garments, appliances, kitchenware and automobiles.
While Dry Cargo has dominated the Indian exports, refrigerated cargo which had dipped by 4% in 2015 grew strongly at 19% in 2016. Growth in this segment was due to a strong harvest season for vegetables and fruits in India last year. Export of Vegetables had fallen by 21% due to untimely rains in 2015 but then it bounced back in 2016 with a record growth of 80%.
“Amongst fruits, grapes were in demand as Indian exporters benefited from a strong local harvest. A short season of grapes in South Africa and a shift in focus of South American grape exporters to the US market for better price realization also helped with the increase in the grape exports from India.” says Franck Dedenis.
Other commodities that grew significantly were appliances, kitchenware, metals, automobiles, and garments. The volume growth in Metal and Garments was largely driven by the demand from the US and European markets with select emerging markets showing promise.
Although India remains the largest exporter of buffalo meat, the overall meat export volumes fell by 11% in 2016. “This was largely due to the demonetisation exercise as most of the meat producers rely on cash dealings for their business”, pointed Franck Dedenis. He further added, “The market should recover in 2017”.
Imports: Driven by renewable energy
Imports continue to grow year on year, with volumes registering a 10% growth in 2016. India is the 10th largest importing nation in the world and fifth largest in Asia. Led by demand for electrical motors, consumer electronics, and solar panels, imports from China remained strong with a growth of 19% in 2016.
“India is currently the third largest energy consuming economy in the world after the US and China and plans to achieve 175 GW of renewable energy capacity by 2022. This has led to the rise in imports of solar panels from outside and China is catering to almost 60% of this requirement due to the cost benefit that it offers”, says Franck Dedenis.
After dipping by 2% in 2015, overall imports from the United States made a comeback in 2016 and grew at 7%. This was due to increase in import of wastepaper which has traditionally been the most imported commodity from the US. “In 2016 few wastepaper factories shut operations in Europe forcing Indian suppliers to start sourcing from the US which added to the increase”, says Franck Dedenis.
Imports from Ukraine quadrupled in 2016, as against the year before due to increase in demand for seeds, beans, cereals and oil seeds in South India. “In 2016 the Government relaxed norms by increasing the limit on storage of these commodities due to which we witnessed more import than usual by the local suppliers”, pointed Franck Dedenis.
Refrigerated Cargo grew by 62% as the import of Fruits & Nuts nearly doubled in growth on the back of demand for Apples in the third quarter of 2016. In 2015, the Government had issued a policy of ‘restricted acceptance’ on Apples from China, due to which only few ports like Nhava Sheva were allowed to accept the consignments. This negatively impacted the overall demand for refrigerated cargo. However, in 2016 this restriction was lifted and the imports across India picked-up rapidly.
We live in a globally interlinked world today. The fact that investments are slowing down in the emerging economies poses a big challenge for the world and India. Therefore, even though the outlook for 2017 is brighter, the uncertainty around policy direction across major markets cast doubts over the economic recovery.
However, Maersk Line believes, that with the right policy initiatives India can continue to grow and improve its position in the global trade, delivering double-digit growth in 2017.
“India can boost exports by upto USD 5.5 Billion by improving efficiencies in the supply chain and improving its competitiveness by prioritizing digitization. The development of inland infrastructure, an efficient regulatory environment and developmental training will further help India in this cause. With the Government’s commitment to improvement in these areas, the trade should start to realize the results this year”, says Franck Dedenis.