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India's Exports at the Time of the Global Crisis

India's exports to the European Union and the United States during the diffi cult economic year of 2011 held their own, while those by China faltered. Was the Indian export performance real or a statistical artefact?

COMMENTARY

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India’s Exports at the Time of the Global Crisis

Bishwanath Goldar

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Industry, 9 March 2012). The growth rate in India’s exports in 2011-12 was higher than the average annual rate of growth in exports achieved in the previous 10 years (19.6%).

This excellent export growth performance during 2011 is brought out

India’s exports to the European Union and the United States during the diffi cult economic year of 2011 held their own, while those by China faltered. Was the Indian export performance real or a statistical artefact?

Bishwanath Goldar (bng@iegindia.org) is at the Institute of Economic Growth, Delhi.

Economic & Political Weekly

EPW
april 28, 2012

I
n the light of the current phase of the global financial crisis, which has its origins in Europe – India’s largest trading partner – and which has adversely affected the rate of growth of global trade and the rates of economic growth in industrialised countries, the substantial increase in exports achieved by India during 2011 is commendable.

The value of India’s exports (in $) during April to July 2011 were 42% higher than that in the corresponding period in the previous year (RBI Bulletin, February 2012). In the 11-month period (April 2011 to February 2012), India’s exports were about $267 billion, which was 21.4% higher than exports in the corresponding period in the previous fi nancial year (2010-11) (Press release, Department of Commerce, Ministry of Commerce and

vol xlviI no 17

not only by the Indian official trade statistics, but also by statistics of countries that are major importers of Indian products. Let us consider here how imports of the European Union (EU) grew in 2011. Trade data for the EU reveal that in 2011 there was a marked and almost steady decline in the rate of growth of imports. EU imports in January and February 2011 grew by about 30% per annum (year-on-year basis). The EU imports in November and December 2011 grew by only 3% and 0% respectively. Imports by EU in the four quarters of 2011 rose by 26%, 12%, 8% and 4%, respectively. Overall the growth rate of EU imports during 2011 was about 12%, much less than that achieved during 2010 (about 25%).1

Several developing countries have experienced a marked fall in the growth of imports by the EU (Figure 1, p 16).

COMMENTARY

Figure 1: Growth Rate of EU Imports (2010 and 2011) India Bangladesh 2011 Vietnam Argentina Brazil Chile China Malaysia Philippines South Africa Thailand

China, for instance, saw its imports into the EU fall from 31.9% in 2010 to only 3.4% in 2011. Such a marked fall in the growth rate of EU imports in 2011 has been experienced by Malaysia, Philippines, South Africa and Thailand. In sharp contrast, some countries experienced a step up in the growth rate of EU imports during 2011 despite the fi nancial crisis. These include Bangladesh and

Vietnam. India, along with Brazil and Chile, are a set of countries that experienced a slowdown in the growth rate of EU imports in 2011, but the rate of growth in 2011 remained substantial. In the case of India, the growth rate came down from 30.6% in 2010 to about 18% in 2011.

Exports to the US in 2011

India’s better-than-average export growth performance in 2011 is not a story of EU alone. This is true also for the USmarket. Trade data available at the website of the US Census Bureau (http://www.census. gov/foreign-trade/balance, acce ssed on 6 March 2012) reveal that India has been able to maintain a relatively fast growth in exports to the US in 2011 (as refl ected in US import data) in relation to China and several other developing countries. While China’s exports to the US (mirror exports, refl ected in US import data) during July to December 2011 grew by only 6% over the previous year, India’s exports to the US in this period grew by about 20%. Besides China, several other developing countries experienced a relatively slow growth in exports to the US during

July-December 2011. These include Philippines (growth rate, 9%), South Africa (6%), Thailand (3%), Bangladesh (about 1%) and Malaysia (a

2010

fall in exports to the US by about 1%).

Since offi cial data show that large incre ases in India exports have taken place in 2011 despite the global fi nancial crisis, some commentators have found this news to be “too good to be true”, and

serious doubts have been raised about the reliability of the recent export

statistics. There is a view that the export surge in 2011 is largely explained by some Indians bringing back to the country illegal money parked overseas by

Interestingly, the over- invoicing of exports. Also, there

large incr in

easeBangladesh exports to the EU during 2011

-5 0 10 20 30 40

5 15 25 35 45

did not have a par-

Growth rate, per cent Source: Author’s computations based on trade statistics available at the website of the allel in the Bangla-European Commission (http://ec.europa.eu/trade/statistics, accesses on 29 March 2012).

desh exports to the

US, despite the fact that the former was

facing much greater fi nancial problems than the latter.

India is not the only developing country that has been able to achieve a fast rate of growth of exports to the US during 2011 despite the global fi nancial crisis. Brazil has performed better than

India. The growth (year-on-year basis) of US imports from Brazil during July to December 2011 was 36% whereas that for US imports from India was only about 20%. The corresponding fi gure for Vietnam was 15%.

were newspaper reports questioning the dependability of offi cial exports data for specifi c commodities. According to the Economic Times (“DGCIS says apparel

exports rose 30% in H1, exporters 4 November 2011),

differ”ET Bureau, the DGCIS data show an increase in

apparel exports by about 30% during April-September 2011, but the exporters in India feel that the number is

highly exaggerated. According to another newspaper article (“Scam behind

Rising Guar Exports?”, Business Line, 21 March 2012), the offi cial guar exports figures for 2011 are way ahead of production, and are

domestic guartherefore suspect.

Veeramani in his recent article (“Anatomy of India’s Merchandise Export Growth, 1993-94 to 2010-11”, EPW, 7 January 2012)

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april 28, 2012 vol xlviI no 17 EPW Economic & Political Weekly

COMMENTARY

has carefully analysed trends in India’s merchandise exports. Among other issues, he has addressed the question whether the surge in India’s exports in 2011 was due to over-invoicing. From his assessment of the situation, he concludes that “India’s official export fi gures are real, not an artefact of over-invoicing”.

The view that the surge in India’s exports is caused by over-invoicing of exports has also been questioned in “Is the Export Boom Really Black Money?”, Swaminathan S Anklesaria Aiyar, Economic Times, 16 October 2011). One argument advanced is that the use of over-invoicing of exports as a means to bring back illegal money will make such money subject to tax, and why would one chose this channel to bring back illegal money when there are other channels in which this tax can be avoided. Another argument is that in the worsening global economic situation, foreign investors have pulled out billions of dollars from India, and this is not the climate in which black money operators in India will bring back home huge sums of illegal money parked abroad. In this context, it is important to recognise that India is not the only country which attained fast growth in exports in 2011. Will it be right to argue that the fast growth of EU imports from Bangladesh, Brazil and Vietnam is genuine, but that such growth in EU imports from India is caused by an over-invoicing of exports? Obviously, those who believe in the “overinvoicing theory” as an expla nation of the surge in India’s exports in 2011 have a lot to clarify.

Turning now to the issue of possible errors in the recent official export statistics, it seems it would not be appropriate to attribute the observed export surge mostly or entirely to errors in export data. A high rate of growth in Indian exports to the US and EU is indicated both by Indian data as well as imports data of these countries. According to the Indian official statistics, India’s exports to the EU (in $) grew by about 32% in the period April to September 2011. The EU imports data indicate that the imports from India grew by about 20% in this period. The Indian official data indicate that India’s exports to the US (in $) in the period April to October 2011 grew by about 43%. The US imports data indicate that the growth rate of US imports from India in this period was about 24%. There are gaps between the growth rates in India’s exports to the EU and the US reported by India and the growth rates in EU and US imports from India as reported by the EU and the US. But, there may be valid reasons for these gaps. What is more important is to recognise that both sets of figures indicate that I ndia attained a rapid growth in exports to the EU and the US in 2011 despite the economic slowdown in these countries.

Impact of Structural Factors

From the point of view of policy, it is more useful to consider the surge in India’s exports as being caused by certain structural factors, particularly structural changes taking place in some of the markets for India’s exports. One possibility is that many importers in the EU and the US who were overly dependent on China as their source of supply are now diversifying to other countries.2 This would explain the slowdown in Chinese exports to the EU and US markets and fast growth in exports of some developing countries. An important question that arises here is why the process of diversification has benefi ted some developing countries such as Brazil and India and not other developing countries, particularly Malaysia, Philippines, South Africa and Thailand.

An analysis of data of US imports from Brazil, China and India in 2011 (source: United States International Trade Commission) brings out the effect that structural factors had on the growth of US imports from these three countries. The growth of US imports from China has been substantially lower than the US imports from Brazil mainly because of the differences in the product composition of imports. US imports from China are dominated by electronics products (40%), textiles and apparel (11%) and miscellaneous manufactured products such as luggage, handbags, furniture, and toys and games (14%). The growth rate of US imports of these products categories in 2011 has been relatively low. US imports of electronic products grew by 6%, imports of textiles and apparel grew by about 9% and imports of miscellaneous manufactured products grew by about 2%, whereas the overall US imports grew by 15%.

The items that dominated US imports from Brazil are energy related products (29%), minerals and metals (18%), and agricultural products (15%). The US imports of these items in 2011 grew at the rate of 27%, 23% and 19%, respectively. Clearly, the product composition of imports explains most of the observed difference in the growth of US imports from China and Brazil.

A similar explanation can be provided for the difference between the growth rates in US imports from India and China. A relatively fast growth of items such as chemicals and related products, energy-related products, and minerals and metals account for a much larger share of US imports from India than in US imports from China. Electronic products, whose imports in the US grew rather slowly in 2011, formed a much smaller part of imports from India than in the imports from China. It is evident that the superior growth performance of India’s exports to the US as compared to the Chinese exports to the same country can be explained to a large extent by the difference in the product composition of US imports from these two countries.

Notes

1 The growth rate of EU imports in 2011 was significantly lower than that in 2010, but it was well above the trend growth rate in EU imports during the period 2001 to 2010 (about 6% per annum). Therefore, the growth rate in EU imports during 2011 cannot be regarded as low.

2 I thank Mustafizur Rahman of the Centre for Policy Dialogue, Dhaka for drawing my attention to this possible cause of surge in India’s exports.

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Economic & Political Weekly

EPW
april 28, 2012 vol xlviI no 17

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