Sharp drop in engineering trade

The sudden drying up of demand for exports of ferrous and non-ferrous metals triggered a slump in overall engineering exports

POLICY WONK

ENGINEERING EXPORTS

The monthly engineering figures for 2020-21 vis-à-vis 2019-20 are depicted in Table1 and Figure1 as per the latest DGCI&S estimates.

#

Source: DGCI&S, Govt of India

#

Source: DGCI&S, EEPC research

Correlation between manufacturing production and engineering exports

The engineering sector is an important component of the broader manufacturing sector and the share of engineering production in overall manufacturing output is quite significant. As exports generally come from what is produced within a country, some correlation between manufacturing production growth and engineering exports growth should exist. We briefly looked at the trend in manufacturing growth as also engineering exports growth to see if they move in tandem. It may be mentioned that manufacturing has 77.63 percent weightage in India’s industrial production.

During fiscal 2019-20, engineering exports growth and manufacturing growth moved in the same direction in as many as nine out of 12 months, including March 2020. The first four months of fiscal 2020-21 saw both moved in the same direction but the month of August witnessed the opposite. However, both moved in the same direction once again in September 2020 as engineering exports registered y-o-y growth against a decline in the previous month and manufacturing output recorded a much smaller y-o-y decline as compared to the previous month. Table2 shows the shortterm trend of both manufacturing output and engineering exports.

We also present the month-wise revised engineering exports for 2019-20 as compared to 2018-19 in Table3

#

Source: Department of Commerce and CSO

#

* Revised data
Source: DGCI&S

Impact of exchange rate

How did the exchange rate fare during October 2020 and what was the recent trend in rupee-dollar movement? In order to get a clearer picture of the recent trend, we not only took the exchange rate of October 2020, but also considered the monthly average exchange rate of the rupee vis-à-vis the dollar for each month of fiscal 2019-20 against those of 2020- 21 as mere one month figure does not reflect any trend. Tables4A&B and Figures2A&B depict the short-term trend clearly:

#
#

Source: RBI, FBIL, EEPC Research

#

Source: RBI, FBIL, EEPC Research

#

Source: RBI, FBIL, EEPC Research

As per latest data released by FBIL

The rupee has been strengthening over the months in 2020-21 but y-o-y depreciation continues vis-à-vis the dollar.
During October 2020, rupee at 73.46 per USD was largely unchanged in terms of the dollar over the previous month but y-o-y depreciation at 3.4 percent was a tad higher than that of September 2020. After a record low in April 2020, the rupee continued to strengthen vis-à-vis the greenback and was broadly confined in the range of 73.5-75 per dollar during the last four months.

Outlook seems in favour of rupee:

Continuous strengthening of the rupee since the last few months was mainly led by a high current account surplus during the first quarter of the current fiscal and recent drop in oil prices. The pandemic-led sell off in the domestic capital market has stabilised and the RBI, after building an all-time high foreign exchange reserve, is expected to intervene less in the currency market. These factors, coupled with the prospects of foreign inflows in the near term, may lead to a gradual recovery of rupee at around 72 per dollar by the end of the ongoing fiscal.

OVERALL SCENARIOMerchandise trade

Exports dropped y-o-y once again in October 2020
  • After registering positive growth of 5.99 percent year-on-year in September 2020, India’s merchandise exports once again declined in October 2020 by 5.12 percent over the same month last fiscal. Exports were $24.89 billion in October 2020 as against $26.23 billion in October 2019. In rupee terms, the decline was 1.88 percent.
  • Major commodities/commodity groups that recorded positive growth in exports during October 2020 vis-à-vis October 2019 include other cereals (378.23), rice (113.62), oil meals (78.57), iron ore (74.14), oilseeds (54.21), carpet (37.67), cereal preparations and miscellaneous processed items (36.18), ceramic products and glassware (34.92), spices (21.85), drugs and pharmaceuticals (21.85) and jute mfg including floor covering (18.73) percent respectively, among others. On the other hand, petroleum products (-52.04), cashew (-21.57), gems and jewellery (-21.27), leather and leather products (-16.67), man-made yarn/fabs./made-ups etc. (-12.8), electronic goods (-9.36), coffee (-9.23), marine products (-8.09), plastic and linoleum (-6.86) and engineering goods (-3.75) percent respectively recorded y-o-y decline in shipments in October 2020
  • Cumulative value of exports for the period April-October 2020-21 was $150.14 billion as against $185.4 billion during April-October 2019-20, registering negative growth of 19.02 percent in dollar terms. In rupee terms, the decline was 13.76 percent over the same period last fiscal.
  • Imports in October 2020 dropped by 11.53 percent to $33.61 billion from $37.99 billion in the same month last fiscal. In rupee terms, the decline was 8.52 percent.
  • Cumulative value of imports for the period April-October 2020-21 was $182.29 billion as against $286.07 billion during April-October 2019-20, registering negative growth of 36.28 percent. The decline was 32.11 percent in rupee terms.
  • Trade deficit narrowed by 25.87 percent in October 2020 as it declined to $8.71 billion in October 2020 from $11.15 billion in October 2019. On a cumulative basis, the deficit shrank by 68.05 percent to $32.16 billion during April-October 2020-21 from $100.67 billion during the same period last fiscal.
Engineering exports declined in October 2020 after growth in September
  • After achieving 3.07 percent growth in September 2020, engineering exports from India declined once again in October 2020. Shipments declined by 6.26 percent to $5785.29 million during the month of October 2020 from $6171.31 million during October 2019.
  • On a cumulative basis, engineering shipment from India declined by 14.15 percent to $38,140.85 million during April-October 2020- 21 from $44,425.72 million during the same period last fiscal.
  • The share of engineering in total merchandise exports dropped again to 23.24 percent in the reporting month from 23.84 percent in September, 25.42 percent in August, 27.12 percent in July 2020, 26.57 percent in June 2020, and 28.72 percent in May 2020. On a cumulative basis, the share was recorded at 25.4 percent.
  • Out of 33 engineering panels, 18 panels recorded negative growth and 15 panels recorded positive growth in exports during October 2020 vis-à-vis October 2019. In cumulative terms, 29 out of 33 panels exhibited a y-o-y decline in exports, while remaining four panels exhibited positive growth.
  • Six out of 25 countries recorded positive cumulative growth in engineering exports during April-October 2020 over April-October 2019, while 10 out of 25 countries recorded positive y-o-y growth in October 2020.
Engineering exports declined in October 2020 after growth in September
  • India’s engineering imports during October 2020 were valued at $6911.83 million compared to $9228.91 million in October 2019, registering negative growth of 25.1 percent in dollar terms.
  • The share of engineering imports in India’s total merchandise imports dropped during October 2020 in comparison to October 2019, which has been estimated at 20.6 percent.

Rupee-dollar trends in 2019-20 vis-à-vis 2018-19

During 2019-20, the rupee depreciated over the dollar between April to August 2019 but at a narrowing rate over the month and then witnessed some appreciation in the next three months. December 2019 to February 2020 again saw marginal depreciation of the rupee over the greenback but the month of March 2020 saw a record low of the rupee as the pandemic started taking a toll on investors’ sentiments. The pictorial representation may provide a clearer picture.

Top 25 engineering export destinations in October 2020

We now look at the export scenario of the top 25 nations that had highest demand for Indian engineering products during April-October 2020 over April-October 2019.

Country-wise engineering exports Some observations
  • Six out of 25 countries recorded positive cumulative growth in engineering exports during April-October 2020 over April-October 2019, while 10 out of 25 countries recorded positive y-o-y growth in October 2020.
  • The US retained its top position of being the numero uno destination for India’s engineering products during April-October 2020 over April-October 2019, although exports to the US fell in both monthly as well as cumulative terms.
  • While monthly exports to China, India’s second largest export destination have come down, cumulative exports have experienced significant growth of 175 percent.
  • Within the ASEAN region, monthly exports growth remained positive to Thailand and Singapore. However, negative monthly exports growth was noted to Indonesia, Malaysia, and Vietnam. In cumulative terms though, exports to all these ASEAN countries grew, barring Thailand.
  • UAE replaced Singapore to become the third-largest exports destination for India’s engineering sector although in cumulative terms exports from India to UAE declined.
  • All the European countries among India’s top 25 engineering export destinations recorded negative monthly growth and negative cumulative growth.
  • The share of India’s engineering exports to its top 25 nations accounted for 76.9 percent of India’s total engineering exports in April-October 2020. This significant high share is indicative of the dependence of India’s engineering export on the traditional markets.

Region-wise engineering exports

Table6 and Figure3 depict region-wise India’s engineering exports for April-October 2020 as opposed to April-October 2019.

Region-wise engineering exports: Some observations
  • ASEAN+2 like the previous month ranked as the numero uno destination, as the region with highest shipment of engineering products from India during April-October 2020 over April-October 2019 with a share of 18 percent of total engineering exports.
  • India’s exports to North America and EU ranked second and third in terms of global shipments of Indian engineering goods in April-October 2020 with a share of 18.1 percent and 17 percent of total engineering exports respectively.
  • Northeast Asia ranked fourth in global shipments of Indian engineering goods in April-October 2020 with a share of 15 percent, which is lower in comparison to its last month share
  • While exports to all regions barring Latin America fell during October 2020 compared to that of last year, in cumulative terms Northeast Asian countries remained the biggest destination.
#

Source: Department of Commerce, Government of India

#

Note: *Figures have been rounded off. **Myanmar has been included in ASEAN+2 and not in South Asia, since ASEAN is a formal economic grouping Source: DGCI&S

#

Source: Data from DGCI&S and EEPC India analysis

Panel-wise engineering exports

We begin by looking at the engineering panel-wise exports for the month of October 2020 vis-à-vis October 2019 as well as April-October 2020-21 vis-à-vis April-October 2019-20. The data is given in Table7.

#

Source: Department of Commerce, Government of India

  • India’s engineering exports slipped back into the negative territory in October 2020 declining by 6.3 percent (y-o-y) to $5785.3 million after recording positive growth in the month of September 2020. India’s merchandise exports in October 2020 were $24.89 billion, as compared to $26.23 billion in October 2019, exhibiting negative growth of -5.12 percent. Similarly, India’s engineering exports witnessed negative growth in October 2020 after September’s buoyancy from $6171.3 million in October 2019 to $5785.3 million in October 2020. In cumulative terms the first seven months recorded a decline of 14.1 percent from $44,425.72 million in April-October 2019-20 to $38,140.85 million in April-October 2020-21, given the fact that Covid19 still continues to impact global trade and economy negatively
  • Out of 33 engineering panels, 18 panels recorded negative growth and 15 panels recorded positive growth in exports during October 2020 vis-à-vis October 2019. In cumulative terms, 29 out of 33 panels exhibited y-o-y decline in exports, while the remaining four panels exhibited positive growth.
  • Exports of iron and steel recorded negative growth of 19.01 percent in October 2020 compared to the same period last year. The progressive opening up of the economy and improving economic activities leading to better domestic demand resulted in declining exports and relatively increasing imports in recent months. Furthermore, exports of products of iron and steel increased by merely 4.41 percent in October, thereby resulting in a decline in exports of the total group by 9.75 percent. The total segment on the other hand recorded a 6.7 percent jump in exports in cumulative terms.
  • In case of non-ferrous metals, segments like nickel and products, lead and products, copper and products, zinc and products, and tin and products witnessed decline in exports of 58, 36, 20.07, 12.8, and 14.2 percent respectively during October 2020. Sectors like aluminium and products witnessed positive growth of 12.94 percent in the month of October 2020.
  • Within industrial machinery, overall there has been miniscule fall in the monthly exports of 0.6 percent, while there has been a decline of 23 percent in cumulative terms during April-October 2020-21. Negative exports performance was noticed in segments including industrial machinery for boilers (39.3), air-condition and refrigeration machinery (20.7), other industrial machinery (9.1), and machinery for dairy, food processing (9.2) percent respectively during October 2020 compared to the same period last fiscal. The remaining segments witnessed positive growth. In cumulative terms, too, the growth was negative of 22.97 percent, given the significant decline in exports witnessed by most of the subsectors in the last few months.
  • The electrical machinery segment showed negative growth in October 2020, unlike the pattern observed in the previous months. In October, exports dropped by 7.63 percent while in cumulative terms the exports dropped by 9.03 percent, given the sharp decline in exports the sector faced in the last few months of the current fiscal.
  • Surprisingly in the auto components and parts sector, exports of two- and three-wheelers and auto components parts witnessed positive growth of 10.5 and 5.33 percent respectively during October 2020 vis-à-vis October 2019. On the other hand, exports in the entire automobile sector remained negative both in monthly and cumulative terms mainly due to subdued demand in motor vehicles and cars. Exports in automobiles fell by 16.7 percent in October 2020 and by 43.6 percent during April-October 2020- 21 compared to same period last fiscal.
  • Exports of aircraft, spacecraft and parts exhibited negative growth both monthly by 26.77 percent in October 2020 and in cumulative terms by 23.76 percent. Exports of ships, boats and floating structures witnessed significant decline (more than 61 percent) in October 2020 and in cumulative terms by 9.45 percent. Major importing countries such as Singapore and Sri Lanka also witnessed decline in imports from India during October 2020 compared to same period last fiscal.
  • In the rest of the engineering segments, while there was decline in almost all sectors, slight increase in exports was noticed in case of medical devices and equipment (3.65), hand tools and cutting tools (6.69), accumulators and batteries (15.68), cranes, lifts and winches (5.08), and other construction machinery (9.16) percent respectively, during October 2020 compared to October 2019. Prominent panels like railway, transport and equipment, office equipment and tools, electrodes and accumulators, and bicycle and parts witnessed decline in exports during October 2020 vis-à-vis October 2019 of 59, 40.18, 10.93, and 15.92 percent respectively.

ENGINEERING FERROUS AND NON-FERROUS PRODUCTS WITH NEGATIVE GROWTH IN OCTOBER 2020

  • Exports of iron and steel under Chapter 72: fell by 19% in October 2020
  • Exports of copper and products under Chapter 74: fell by 20.1% in October 2020
  • Export of zinc and products under Chapter 79: fell by 12.9% in October 2020
  • Exports of nickel and products under Chapter 75: fell by 58% in October 2020 and 61.8% in April-October 2020-21
  • Exports of lead and products under Chapter 78: fell by 36.1% in October 2020 and 1.1% in April-October 2020-21
  • Exports of tin and products under Chapter 80: fell by 14.2% in October 2020 and 19.4% in April-October 2020-21
#
#
#
#
#
#
#
#
#
#
#
#

After some months of positive growth trends, October witnessed significant decline in the exports of both ferrous and non-ferrous metals. Exports in almost all sectors barring iron and steel products and aluminium experienced month-onmonth decline. Looking into the reasons for the sudden fall in exports, we found that it was the result of both domestic and external factors.

On the domestic front, the government has been increasing their spending on growing infrastructure across the country, which is increasing the demand for metals such as iron and steel and copper. Additionally, as factories are gearing up production, demand for the metals in the domestic market are rising. In fact the recent festive season witnessed a high demand trend after several months. If this demand recovery continues, the domestic demand for metals is expected to increase.

At the same time, in the international market due to months of inactivity arising out of the mandatory lockdowns, there has been a downward trend in the demand of all base metals. As the countries come back to business as usual, due to the sluggish demand of the past months, most LME metals faced challenges due to oversupply. Oversupply has affected prices of major ferrous and non-ferrous metals such as copper, nickel, etc. In case of nickel oversupply the lack of demand in the global EV industry impacted exports. While some recovery has come with increase in demand from China, a stronger demand is needed to sustain the industry.

Slump in exports

MAZ0611202010194901632-oversight-FIGURE-4
MAZ0611202010194901632-oversight-FIGURE-4
MAZ0611202010194901632-oversight-FIGURE-4
MAZ0611202010194901632-oversight-FIGURE-4
MAZ0611202010194901632-oversight-FIGURE-4

Engineering panels – country-wise analysis

We now analyse the performance of some of the important products during October 2020. We have taken the major panels and computed the top importers and sharp declines to get an idea of the current trade pattern. (Tables 14-22)

Export of iron and steel
  • China, Vietnam, and UAE were the top three importers of Indian iron and steel during April-October 2020 with market shares of 31.43, 10.61, and 6.83 percent respectively.
  • China recorded monumental growth of 614.25 percent followed by Kenya and Philippines exhibiting growth of 233.75 and 143.72 percent respectively in exports of Indian iron and steel during April-October 2020 compared to April-October 2019.
  • Malaysia and Bhutan experienced sharp fall of more than 45 percent in exports during April-October 2020 compared to same period last fiscal.
Export of products of iron and steel
  • The USA, Canada, and UAE were the top three importers of India’s products of iron and steel during April-October 2020 with 21.51, 5.56, and 5.31 percent shares respectively in India’s global exports of the same.
  • Algeria experienced more than 170 percent growth followed by Egypt and Oman in imports of products of iron and steel during April-October 2020.
  • Nigeria, Kuwait, and Mexico conceded substantial decline in imports by more than 40 percent for the product group during April-October 2020.
Export of industrial machinery
  • The USA was the largest importer of Indian industrial machinery during April-October 2020 with 15.48 percent share in India’s global imports of the product group. Thailand and China were the two immediate followers with 5.59 and 5.45 percent shares respectively.
  • Togo was the top importer with monumental growth of 233.68 percent followed by Benin, witnessing growth of more than 90 percent in imports of industrial machinery from India followed by Hungary, Cambodia, and Russia during April-October 2020 over the same period last fiscal.
  • Among the major importers, Indonesia, Bangladesh, Nigeria, and Nepal recorded over 40 percent y-o-y declines in imports during April-October 2020.
Export of automobiles
  • Mexico, USA, and South Africa were the top three importers of India’s automobiles during April-October 2020 with 18.77, 9.11, and 8.03 percent share in India’s global exports respectively over the same period last fiscal.
  • Sudan and Egypt recorded substantial growth of 585.16 and 352.84 percent respectively followed by Brunei, Austria, and Argentina with more than 100 percent growth in imports of the product group from India during April-October 2020 over the same period last fiscal.
  • Sri Lanka, South Africa, Nepal, Colombia, Bangladesh, and UAE saw their imports of automobiles fall by more than 50 percent during April-October 2020 compared to same period last fiscal.
Export of non-ferrous metals
  • Malaysia, Korea, and China were the top three importers of India’s non-ferrous metals and products during April-October 2020 with 19.6, 18.12, and 12.5 percent shares respectively in India’s global imports of the same.
  • Greece experienced massive growth of 603.44 percent followed by Singapore and China at 317.59 and 157.28 percent respectively in imports of non-ferrous metals and products during April-October 2020.
  • Italy, Thailand, and Mexico conceded substantial decline in imports by more than 40 percent for the product group from India during April-October 2020 vis-à-vis the same period last fiscal.
Export of electrical machinery and components
  • USA, Germany, and Singapore were the top three importers of India’s electrical machinery and components during April-October 2020 with market shares of 35.62, 8.9, and 4.3 percent respectively.
  • New Zealand recorded massive growth of 1470.62 percent followed by Hong Kong and Vietnam at 256.35 and 104.38 percent respectively in imports of India’s electrical machinery and components during April-October 2020 vis-à-vis April-October 2019.
  • UK experienced sharp decline of more than 60 percent in imports of India’s electrical machinery and components in April-October 2020 when compared to April-October 2019. It was also the case of Nigeria, Malaysia, Singapore, and China, which experienced more than 35 percent drop.
Export of aircrafts and spacecrafts
  • The USA, France, and Singapore were the top three importers of India’s aircrafts and spacecrafts during April-October 2020 with around 37.03, 11.75, and 9.48 percent shares respectively in India’s total global exports of the product.
  • Indonesia was the top importer for the product group with monumental growth of 7920.96 percent during April-October 2020. Also, Ireland and UAE registered substantial growth of 631.93 and 405.57 percent respectively in imports of the product group from India during April-October 2020 as compared with the same period last fiscal.
  • On the flipside, demand for India’s aircrafts and spacecrafts from the UK, Germany, Malaysia, and Singapore dropped by more than 35 percent y-o-y basis during April-October 2020 when compared to April-October 2019.
#

Source: Department of Commerce Government of India

#

Source: Department of Commerce Government of India

#

Source: Department of Commerce Government of India

#

Note: Automobiles sector includes motor vehicles and two- and three-wheelers
Source: Department of Commerce Government of India

#

Source: Department of Commerce Government of India

#

Source: Department of Commerce Government of India

#

Source: Department of Commerce Government of India

#

Note: Export figures in case of some nations are showing zero due to rounding off but actually they are very small in value
Source: Department of Commerce and CSO

#

Source: Department of Commerce and CSO

Export of ships, boats and floating structures and parts
  • Singapore, Indonesia, and UAE became the largest importers of ships, boats and floating structures from India in April-October 2020 followed by Malaysia and Sri Lanka. Their respective shares were 35.89, 14.17, 12.6, 9.02, and 8.95 percent.
  • Though Malta and Portugal recorded negligible imports in October 2020, the cumulative imports to both the nations recorded meteoric increase as they had negligible imports in April-October 2019. Indonesia registered substantial growth of 323.27 percent in imports of the product group from India during April-October 2020 as compared with the same period last fiscal.
  • However, sharp decline of more than 60 percent was noticed in exports to UAE from India during April-October 2020 as compared with the same period last fiscal whereas exports dropped to zilch for Cyprus, Liberia, Norway, and Oman.
Export of auto components
  • The USA remained the top importer of auto components in April-October 2020 with a share of 22.83 percent followed by Turkey, Germany, Bangladesh, and Vietnam with respective shares of 6.18, 5.82, 5.45, and 5.11 percent.
  • Iraq, Congo, and Slovenia recorded increase of more than 115 percent followed by Slovakia and Spain in imports from April-October 2020 when compared to April-October 2019.
  • UAE and Indonesia recorded significant decline of more than 55 percent in April-October 2020 when compared to April-October 2019.

INDIA’S ENGINEERING IMPORTS

India’s engineering imports during October 2020 were valued at $6911.83 million compared to $9228.91 million in October 2019, registering negative growth of 25.1 percent in dollar terms. In cumulative terms, the first seven months recorded a decline of 39.3 percent from $63,689.23 million in April-October 2019-20 to $38,666.91 million in April-October 2020-21.

Among the major engineering panels, sectors such as iron and steel, machine tools, machinery and electrical equipments, and transport equipments, witnessed decline of 22.3, 29.6, 15.5, and 56.3 percent respectively during October 2020 compared to October 2019.

The share of engineering imports in India’s total merchandise imports dropped during October 2020 in comparison to October 2019, which has been estimated at 20.6 percent.

The monthly engineering import figures for fiscal April-October 2020 visà-vis April-October 2019 is depicted in Table23 as per the latest availability of data. Figure10 depicts engineering imports for April-October 2020 compared to April-October 2019.

We now present the trend in two-way yearly trade for the engineering sector from 2014-15 to 2019-20 as well as the current fiscal 2020-21 depicted in Table24

Figure11 depicts the yearly trend in engineering trade from 2014-15 to 2019- 20 as well as the current fiscal April-October 2020-21.

#

Source: Department of Commerce, Government of India

#

Source: EEPC India analysis

#

Source: DGCI&S, EEPC India Analysis

#

Conclusion

India’s engineering trade experienced sharp decline in October 2020 after the previous month’s positive growth. The decline was majorly triggered by the huge fall in exports of ferrous and non-ferrous metals. Interestingly since April 2020, when exports of all commodities fell due to the Covid19 pandemic, major metals such as copper, iron and steel, aluminium, and nickel experienced a rise in exports. The recovery in the previous months was purely due to factors such as sudden surge in demand from China and the re-emergence of several industries from lockdown. However, with months of depressed demand, even from before Covid19, the scare of oversupply had always loomed high. With UNCTAD predicting a 20 percent decline in merchandise trade in 2020, it seems, recovery would be difficult and we may witness the declining trend in the coming months.

On the domestic front, however, the festive season ushered in growth in demand across sectors. At the same time the government introduced a number of packages under the name of Atmanirbhar Bharat for the industry. The latest– Atmanirbhar Package 3.0 – is very well targeted and is expected to kick-start demand, investment, exports, etc. While it will require time, such steps would act as catalyst and enabler in our economy’s recovery.

Co OISE 2021

Comment