Growth in imports

outpaces exports
CRISIL Economy First Cut
December 2016

Overview

Indias merchandise exports grew modestly at 2.3% on-year in November 2016. This export growth could be
considered weak, given that exports had tanked 26.2% in November 2015, resulting in a low base. On the
other hand, import growth accelerated, increasing 10.4% on-year in November, 2.5 percentage points higher
than the previous month. The growth in imports was also a result of the low-base effect, as imports had
plunged 30% in November 2015.

Trade deficit widened to $13 billion in November 2016 from $10.3 billion in November 2015, owing to faster
growth in imports compared with exports.

Notwithstanding the on-year growth figures for November, imports have lagged behind exports for fiscal
2017 so far. Imports showed an overall decline of 7.7% for April-November 2016, while exports increased
modestly by 0.5%.

The recent uptick in imports seen in the month of November may be halted by demonetisation. The
governments sudden and unexpected announcement on November 8 of withdrawing legal tender status of
Rs 500 and Rs 1,000 notes effectively took away 86% of the currency in circulation by value. Replacement of
the withdrawn currency has been sluggish so far, choking transactions in the economy. Assuming the
situation will take at least a couple of months to normalise, consumption demand will bear the brunt in the
second half of current fiscal, adversely impacting import growth.

Imports gain pace in November

Core imports continue to recover#

%, y-o-y*
Exports

%, y-o-y*

Imports

Consumption goods
Core imports

20.0

10.0

Investment goods

10.0
0.0
0.0
-10.0

-10.0

-20.0

-20.0

Nov/16

Sep/16

Jul/16

May/16

Mar/16

Nov/15

Jan/16

-30.0

Nov/16

Sep/16

Jul/16

May/16

Mar/16

Jan/16

Nov/15

-30.0

*Growth rates are for merchandise goods, taken as 3 month moving average #Refers to merchandise imports excluding oil and gold
Source: Ministry of Commerce and Industry, CEIC, CRISIL Research

Exports growth weakened in November

Merchandise exports increased for the third consecutive month in November. However, the on-year growth
of 2.3% in November was far lower than 8.2% in October.

Among the major export commodities, exports of engineering goods grew 11.6%, and petroleum, crude and
its products grew 3.4%. However, exports in labour-intensive sectors like gems and jewellery and
readymade garments declined by 12.8% and 2.9%, respectively. These sectors have also been affected by
the ongoing cash crunch, which could have a bearing on their future performance.

Among the major export markets, Indias exports to Europe (excluding the United Kingdom) grew 5% on
average in April-October 2016. Indias exports to United States and United Arab Emirates have saw a sharp
growth of 4% and 2.1%, respectively. The major destinations to which Indias exports declined were China
(-14.3%) and the United Kingdom (-3.7%).

Imports gained steam

Merchandise imports rose for the second consecutive month in November.

The higher on-year growth in November compared with October could be attributed to non-oil imports, which
grew 11.7% on-year. Oil imports grew 5.9%.

The surge in non-oil imports was primarily driven by gold, which grew 23.3%. However, core imports (goods
imports excluding oil and gold) also gained 8.7%. Machinery (electrical and non-electrical), electronic goods,
coal, and precious stones were the main drivers of core import growth.

Services trade surplus shrunk in October

Services exports fell 1.7% on-year in October, compared with a rise of 3.4% in the previous month. On the
other hand, imports grew 9.5%. The services trade surplus fell to $5.4 billion in October 2016 from $6.3 billion
in October 2015.

Trade performance (%, y-o-y)

Exports

Imports

Oil

Non-oil

Oil

Non-oil

imports

imports

exports

exports

Nov 2016

2.3

10.4

5.9

11.7

3.4

2.1

Oct 2016

8.2

8.0

4.0

9.1

7.2

8.3

Nov 2015

-26.2

-30.0

-44.8

-24.4

-50.3

-21.0

April-Nov FY17

0.5

-7.7

-11.6

-6.2

-10.1

2.0

April-Nov FY16

-18.1

-16.3

-42.2

-2.8

-51.2

-9.3

Source: Ministry of Commerce and Industry, CEIC, CRISIL Research

Analytical Contacts:
Dharmakirti Joshi

Pankhuri Tandon

Chief Economist, CRISIL Ltd.

dharmakirti.joshi@crisil.com

Economic Analyst, CRISIL Ltd.

pankhuri.tandon@crisil.com

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Last updated: April 2016

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