A remarkable development in India’s trade front since 2012 -13 is that India’s trade -both exports and imports are declining. The fall in trade is mainly due to global slow down. The stress on the external sector is reflected in the country’s trade figures. Both exports and imports have declined during 2014-16; trade deficit also has fallen. Exports came down from $318 bn to $ 266 bn in 2015-16. Similarly, imports came down from $502 bn in 2012-13 to $266 bn in 2014-16. The trade deficit fell to $118 bn.
The overall decline on trade front has enabled India to pull down the trade deficit from $195 bn in 2012-13 to $ 130 bn in 2015-16. The adverse scenario in exports is mainly attributed to global slow down.
Table: India’s export and import (in US $ billion)
Source: DGFT, RBI statistics on Indian economy, September 2016
- India’s merchandise exports stood at US$ 262 billion in 2015-16, compared to $316 bn in the previous year. This is a steep fall of 17% in exports. In 2014 -15 also exports registered a decline but it was a marginal decline.
- Imports have fallen to $380 bn in 2015-16, registering a steep fall of 17.5% compared to the previous year figure of $461 bn. During the previous year also, there was a fall in imports but like in the case of exports, the decline was marginal.
- Trade deficit of the country has fallen to $118 compared to $145 bn during the previous year. trade deficit is improving after reaching the maximum of $195 bn in 2013-14.
- The decrease in imports and improvement in trade deficit was led by steep fall in crude imports. As per the latest statistics of the DGFT, crude import bill has fallen to $82 bn in 2015-16.
- Commodity-wise disaggregated figures reveal that the setback in merchandise exports in 2015-16 was led by decline in exports of manufacturing items and also some primary products.
- Lackluster performance of India’s exports was mainly due to sluggish global demand as exports to almost all the major destinations, including the EU, UAE, US and China have either declined or showed a lower growth.
Crude price fall impact: India’s crude import bill halved in two years.
The crude price fall that started during early 2014 is one of the most important global economic event that produced significant effects on Indian economy in recent years. India is the second largest crude oil importer at present and a major consumer. India imports 80 of its crude oil needed domestic consumption.
Table: India’s import of crude oil
|Year||Import (MMT) volume||Average crude price ($)||Crude import bill (US $ Billion)||Crude import bill as % of total imports|
Source: Indian Petroleum and Natural Gas Statistics 2014-15, Ministry of Petroleum & Natural Gas Economics and Statistics Division New Delhi. Data for 2016 is from Directorate General of Commercial Intelligence and Statistics. Column 2, 3 and 4 figures are rounded.
Crude imports constituted to nearly 35% of total imports bill till 2013-14. Around $150 billion were needed to meet crude imports. But after the average crude price fallen below $50, crude import bill has fallen by half to $82 bn for 2015-16. At the same time, consumption increased beyond 200 MMTs. Following are the most important impacts of the low-priced crude on Indian economy.
1. Crude import bill halved: Import bill halved from $165 bn in 2013-14 to $ 82 bn in 2015-16. If we aggregate all machinery items, the import imports bill for machineries becomes larger than the crude import bill. The fall in crude import bill was because of falling international price – from $108/barrel in 2012-14 to $46 during 2015-16.
2. The reduced import bill has enabled the country to save precious foreign exchange.
3. Indirect effects: Crude price fall led to several indirect effects. A fall in income in Middle East has reduced India’s exports. During 2015-16, exports have dwindled to $262 compared to $316 in the previous year. Another indirect effect is that remittances to India has fallen to $63 billion from $66 bn in the previous year. Fall in remittance is happening for the first time in the last eight years.
The crude price impact on India is mixed though the fall in import bill is the most important one. India has benefited on the trade front as the import bill has fallen. But there is adverse effect of reduced remittances from the Middle East. The crude import in terms of value of imports fallen by $90 if we accommodate the higher consumption in the last year (earlier crude import bill was $165 bn and now it is just $82 bn). Traditionally, imports were in the range of 170 to 190 MMTs. But during 2015-16, imports crossed 200 MMTs. This indicate that despite increased import volume, crude bill has halved and this is the trade/welfare gains from low price in the international market.