July exports euphoria a statistical illusion

Though many are upbeat on the fact that merchandise exports rose at a 21-month high of 11.6 per cent in July, this was primarily due to a low base effect which would run till September this year. Many economists say only a substantial rise from October would point to a real recovery.

"An extrapolative exercise shows export growth in July was largely due to a low base effect. If we remove the base effect from actual export growth, the incremental growth would be 3.7 per cent, not 11.6 per cent," said State Bank of India chief economic advisor Soumya Kanti Ghosh. He added due to the base effect, exports would show an increasing trend till September.

Asked how one eliminated the base effect while calculating the growth in exports in a particular month, he said though there were many methods, he had considered the export figures for July 2012 and June 2012 to be the same, and then seen the change in July 2013.

Ghosh said the real change in exports could be gauged only from October.

Between May and December 2012, exports had contracted, but the rate of fall was steeper during July-September 2012. In July 2012, exports fell 14.8 per cent, in August 2012 9.7 per cent and in September 2012 10.8 per cent. In July 2012, exports had fallen to $23.1 billion from $24.92 billion in June.

On the base effect leading to a rise in exports in July this year, Director General of Foreign Trade Anup Pujari said the government hadn't carried out any analysis of the data, as these were provisional. When the final figures were announced, an assessment would be made, he said.

Most said merchandise shipments are likely to recover in the second quarter of this financial year, with a pick-up in demand from US markets and a depreciation of the rupee, giving the much needed competitive edge to Indian exports. In the first quarter of this financial year, exports fell 1.41 per cent to $72.45 billion, against $73.49 billion in the corresponding period of 2012-13.

"This quarter will be much better than the first quarter. In October-March, we expect a much better demand situation. This is because the US is doing very well. All our forward-booking for the coming winter season has been quite impressive," said M Rafeeque Ahmed, president, Federation of Indian Export Organisations.

Ahmed said demand in the UK and Germany was beginning to improve. This was because Chinese goods had turned costly, he added. "Therefore, we are asking exporters to reduce prices and increase market share. Also, depreciation of the rupee had been somewhat advantageous," he added.

Pujari said it was yet to be seen how the rupee would impact exports from October. "This is not the first time that the rupee is depreciating," he said, adding one should wait for the October data.

Earlier, the Apparel Export Promotion Council had said garment exports were poised to grow 24 per cent to $16 billion this financial year, owing to a rise in demand in American and European markets.

Earlier, Minister of State for Commerce and Industry D Purandeswari had said due to reasons such as weak industrial output, the Euro zone crisis and subdued global demand, the export target of $500 billion for 2013-14 had been scaled down to $325 billion.

In July, exports soared 11.6 per cent to $25.8 billion, compared with $23.1 billion in the corresponding month last year. In May and June, exports fell 1.1 per cent and 4.6 per cent, respectively.

The rise in exports in July was primarily on account of a falling rupee and a rise in demand in America, Africa and East Asia. "Continuing interest in Africa, Latin America, Asean (Association of Southeast Asian Nations) and the Far East regions is the main reason why exports have risen. We expect this trend to continue," Commerce Secretary S R Rao had said. Total exports in the April-July 2013 period stood at $98.3 billion, about 1.7 per cent more than the $96.6 billion in the corresponding period of 2012-13.

"We expect our exports to do slightly better this year. Though the growth in four months has been a mere two per cent, our target is much higher, at 10 per cent, for this financial year," he added.

In July, exports of readymade garments, pharmaceuticals and textiles had been impressive; those of engineering goods and gold jewellery fell. While the import of pearls, semi-precious and precious stones, transport equipment and fertilisers rose, those of gold and silver, crude oil and vegetable oil had declined, said Pujari.

"The market is the US is gaining strength, but the EU is still under economic stress. Though we have registered growth of around 16 per cent in readymade garments in the US and EU markets, our export diversification in non-traditional markets and sustained government help has also helped," said A Sakthivel, chairman, Apparel Export Promotion Council.