Caution advised on Sept's export cheer

Trade and observers say easing of GST norms won't be reflected till Nov

Though exports rose 25.7 per cent in September, economists and exporters advise caution in celebrating the return of sustained trade growth.  

Despite issues over liquidity, exports grew at a six-month high in September over a year before, maintaining the momentum of 13 months of rise even under the Goods and Services Tax (GST) regime. However, experts say the rise did not reflect the supply-side issues faced by industry.

October’s easing in GST rules might take till November or December to reflect in the charts, they add. This includes the government continuing the duty drawback scheme through revised rates post October and easing the filing of GST documents. 

“While I am happy at the high growth shown in September, it should be kept in mind that exporters tried to push out built-up stock till September 30, when the old duty drawback scheme was to be stopped,” said Ganesh Kumar Gupta, president of the Federation of Indian Export Organisations.

Also, goods shipped by merchant exporters in labour-intensive sectors such as handicrafts, carpets and non-apparel textiles did not see considerable rise, he said. He felt export growth in October might be one or two percentage points more than the 9.59 per cent growth in October 2016.

The two primary sets of commodities that led the export rally, engineering goods and refinery products, did so on the basis of rising international commodity prices. In the third month into GST, export growth picked up mainly owing to rising global crude oil prices, which pushed up processed petroleum export by nearly 40 per cent, apart from a broad-based improvement in export of major foreign exchange earners such as engineering goods which rose by a high 44 per cent.

“This is not reflective of a sustained recovery in export capabilities, as prices might change anytime. If we see export grow at about these levels for a succession of three months, we can expect a sustained rise and see annual export top $300 billion in the financial year,” said Madan Sabnavis, chief economist at CARE Ratings.

The rupee’s consistent rise is also expected to dampen export growth and reduce competitiveness. While weakened in September, with foreign investors pulling out capital, the reverse is expected in October. As of Monday evening, the currency was  64.74 to the dollar. Also, as compared to rupee, the currencies of competing developing nations such as Vietnam and Indonesia have seen a sharper depreciation, Sabnavis said.

On the bright side, September saw non-oil and non-gold import rising 19.8 per cent, marginally down from a little over 20 per cent in August, signalling the industrial sector might continue to show high growth for a consecutive month.

On this note, experts say outbound trade is tipped to rise over the next four to six months as the Foreign Trade Policy review, set to be issued in early November, makes structural changes and global demand for Indian export picks up. “For the past couple of years, global GDP growth has consistently been more than trade growth. Apart from protectionism, collapse in commodity prices had been a prime reason. With prices now elevated and the economic outlook of major economies such as the United States, European Union and China looking better, exports might rise over the next couple of months,” said Devendra Pant, chief economist at India Ratings.