The oil exports puzzle

India's non-oil, non-gems & jewellery exports rise 11%, but a 24% rise in gold imports and slow increase in petro product exports are worrying

The data on India’s merchandise trade in 2017-18, released last week, shows that India’s exports have recovered at $303 billion, clocking a 10 per cent growth rate over the previous year. The growth rate in 2016-17 was almost half of that at 5 per cent. 

On the imports front, the growth rate in 2017-18 was much higher at 20 per cent, compared to just 0.5 per cent growth during 2016-17. Consequently, the trade deficit in 2017-18 at $157 billion increased by over 44 per cent over that of the previous year.

Trade numbers always tell a far more nuanced story when they are studied closely and particularly in comparison with the performance during a longer time frame. For instance, a comparison of India’s merchandise trade data for 2017-18 with the numbers in the past few years brings out at least three important messages for policymakers.

One, India’s exports performance, after excluding petroleum products and gems and jewellery, seems to have made a clear break with the past by overcoming the $200-billion barrier. Oil exports are largely influenced by trends in international crude oil prices and gems and jewellery exports are heavily dependent on imports of pearls, precious stones and gold. Hence, excluding petroleum products, gems and jewellery brings out the true measure of India’s exports.

The data for the past few years shows that non-oil and non-gems and jewellery exports have hovered around $200 billion in a year. They were estimated at $196 billion in 2012-13 and moved up to $210 billion and $212 billion in the following two years. In 2015-16 and 2016-17, there was a dip in such exports, when they were estimated at $192 billion and $201 billion, respectively. 

But in 2017-18, non-oil and non-gems and jewellery exports are close to $223 billion. This represents an 11 per cent increase over such exports in 2016-17. This may not be significantly higher than the total exports growth rate of 10 per cent. But note that this increase has come without petroleum products, and gems and jewellery. Are there green shoots of exports recovery in some other sectors that need to be nurtured to further exports growth in the current year?

Two, India’s earnings from petroleum product exports do not seem to adequately reflect the rise in international crude oil prices. Crude oil prices began falling sharply from 2014 before they started rising again from 2017. India’s petroleum product exports in 2017-18 did increase by around 9 per cent, compared to an increase of just 3 per cent in 2016-17. But this growth is far less than the rise in its import of oil and products, which increased by 5 per cent in 2016-17 and shot up by 26 per cent in 2017-18.

This appears to be a puzzle. India’s petroleum exports largely consist of products, which, because of their value addition through refining, should result in an exports increase by a margin higher than the rise in the outgo on petroleum imports, which largely consist of crude oil. However, imports of oil are rising much faster than exports of petroleum products. Why is it that India’s petroleum product exports are not growing as fast as the imports, even as international crude oil prices are going up? Or is it because India’s oil imports last year saw a huge jump?

And three, gold imports at $34 billion in 2017-18 saw a sharp rise of 24 per cent after seeing a fall for two previous years running. The government can do precious little to control petroleum imports. But past efforts at reining in gold imports yielded results as gold imports of $54 billion in 2012-13 were almost halved to $27 billion in 2013-14. They rose again in 2014-15, but had fallen to $32 billion in 2015-16 and $27.5 billion in 2016-17. 

With the expectation of a 10 per cent increase in gold imports in 2018-19, a relatively slow increase in petroleum product exports and international crude oil prices continuing to move up, the government needs to worry about their medium-term implications for India’s balance of payments.