Exports Growth in May Led by Engineering Goods & Petroleum Products-Ind-Ra

Exports are likely to grow 7.2% yoy in FY15, says India Ratings & Research (Ind-Ra). Exports grew 12.4% yoy in May 2014, after a not-so-encouraging performance in April 2014. Conversely, a contraction in imports continues as they shrank 11.4% yoy in May 2014.

Exports growth witnessed by labour intensive sectors augurs well for the economy from an employment perspective. These include leather and leather products (26.88%), ceramic products and glassware (43.76%), readymade garments of all textiles (24.94%) and carpets (19.26%). Also, exports growth in engineering group (22.09%) and petroleum products (28.7%), which alone contributed 78.7% to exports growth, is good news for the manufacturing sector.

Non-oil and non-gold imports were stagnant in May 2014 (0.5% growth). However, a worrying trend is the continuous contraction in the import of machinery (electrical and non-electrical) and project goods. Declining imports coupled with declining domestic production of capital goods imply that an investment revival is still not in sight in the near term. Ind-Ra believes the first policy statement of the new government, Union Budget, will be a major event to set the direction for an investment turn around.

The trade deficit at USD11.2bn in May 2014 was a tad higher than USD10.1bn in April 2014, despite rising exports and declining imports. Cumulatively, the trade deficit was USD21.3bn for the first two months of this fiscal. This is much lower than the trade deficit of USD37.0bn for the same period last fiscal. Ind-Ra expects the current account deficit to come in at USD45.4bn (2.1% of GDP) in FY15 due to the lower trade deficit.

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