Engineering exports growth falls again

While engineering exports fell back in August after signs of recovery in July, the year-on-year decline for both merchandise as well as engineering exports moderated substantially over the month

POLICY WONK

ENGINEERING EXPORTS

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

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Source: DGCI&S, Govt of India

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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 move in the same direction as gradual improvement was noticed for both after sharp decline in April 2020, as depicted in Table2.

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Source: Department of Commerce and CSO

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* Revised data
Source: DGCI&S

We also present the month-wise corresponding revised engineering exports for 2019-20 vis-a-vis 2018-19.

Impact of exchange rate

How did the exchange rate fare during August 2020 and what was the recent trend in rupee-dollar movement? In order to get a clearer picture of the recent trend, not only we took the exchange rate of August 2020, but considered each month of fiscal 2019-20 and 2020-21 and looked at the movement of monthly average exchange rate of the rupee vis-à-vis the dollar as mere one month figure does not determine the trend. Table4A and Figure2A depict the short-term trend clearly:

The rupee continued to weaken y-o-y in August 2020 vis-à-vis the dollar but the month-on-month analysis showed some moderation in the rate of depreciation as it has been strengthening over the month. The movement of rupee vis-à-vis the greenback was broadly in the range of 73-75.5 per dollar during the last two months.

Outlook does not seem so gloomy:

The rupee has been strengthening over the month. The pandemic-led sell off in the domestic capital market seems to have stabilised. RBI has also been accumulating foreign exchange reserves and has taken it to near the all-time high levels. These factors, coupled with the prospects of foreign inflows in the near term, may lead to a gradual recovery. However, possibilities of sharper US-China confrontation, any escalation in the India-China tensions, and further adversities arising out of the ongoing pandemic cannot be ruled out as deterrents to a smooth recovery of the rupee.

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Overall Scenario Merchandise trade

Decline in exports continued for fifth straight month to August in 2020-21
  • Merchandise exports in August 2020 were $22.7 billion, as compared to $25.99 billion in August 2019, exhibiting negative growth of 12.66 percent that was higher than10.21 percent year-on-year negative growth seen in July 2020. In rupee terms, the y-o-y decline in exports during June 2020 was 8.33 percent.
  • Major commodities that recorded positive growth during August 2020 vis-à-vis August 2019 were other cereals (316.04), rice (59.14), iron ore (46.03), oil meals (28.89), oil seeds (24.96), cereal preparations and miscellaneous processed items, (24.05) and drugs and pharmaceuticals (17.27) percent respectively, among others. On the other hand, negative growth was observed in exports of cashew (-47.61), gems and jewellery (-43.28), petroleum products (-39.91), man-made yarn/ fabs./made-ups etc (-24.23), marine products (-23.04), leather and leather products (-16.82), tea (-16.74), mica, coal and other ores, minerals including processed minerals (-16.59), RMG of all textiles (-14), electronic goods (-13.84), spices (-7.96), and engineering goods (-7.69) percent respectively.
  • Cumulative value of exports for the period April-August 2020-21 was $97.66 billion as against $133.14 billion during the same period last fiscal, registering negative growth of 26.65 percent in dollar terms. The negative growth was 20.73 percent in rupee terms.
  • Imports in August 2020 were $29.47 billion, registering a decline of 26.04 percent in dollar terms over imports of $39.85 billion in August 2019. The drop in y-o-y imports were 22.38 percent in rupee terms.
  • Cumulative value of imports during April-August 2020-21 was $118.38 billion as against $210.39 billion during the same period in 2019-20, registering negative growth of 43.73 percent in dollar terms and negative growth of 39.18 percent in rupee terms.
  • Trade deficit declined by 51.15 percent during August 2020 as it dropped to $6.77 billion from $13.86 billion in August 2019. On a cumulative basis, the decline in trade deficit was 73.18 percent to $20.72 billion from $77.25 billion during the first five months of fiscal 2019-20.
Engineering exports from India declined by 8.03% in August 2020
  • After registering y-o-y growth in July 2020, engineering exports from India again dropped by 8.03 percent in August 2020 as compared to the same month last fiscal. During the months of June, May, and April 2020, engineering exports conceded y-o-y decline of 6.37, 22.96, and 63.43 percent respectively, before registering 9.66 percent growth in July. Engineering exports during August 2020 stood at $5769.92 million as against $6273.83 million in the same month last fiscal.
  • On a cumulative basis, the decline in engineering exports was 18.73 percent during the first five months of fiscal 2020-21. Cumulative engineering exports during April-August 2020-21 were recorded at $26,002.56 million as against $31,996.91 million during the same period last fiscal.
  • The share of engineering in total merchandise exports dropped to 25.42 percent from 27.12 percent in July 2020, 26.57 percent in June, and 28.72 percent during May 2020. On a cumulative basis, the share was recorded at 26.63 percent.
  • Out of 33 engineering panels, 25 panels recorded negative growth and eight panels recorded positive growth in exports during August 2020 vis-à-vis August 2019. In cumulative terms, 28 out of 33 panels exhibited y-o-y decline in exports.
  • Only five out of 25 countries recorded positive monthly growth in August 2020 over August 2019, which is deterioration over last month’s performance with 14 countries recording positive monthly growth in July 2020 over July 2019.
India’s August engineering imports down by 42.6%
  • • India’s engineering imports during August 2020 were valued at $5114.42 million compared to $8917.11 million in August 2019, registering negative growth of 42.6 percent in dollar terms.
  • The share of engineering imports in India’s total merchandise imports dropped during August 2020 in comparison to August 2019 which has been estimated at 17.4 percent.

Rupee-dollar trends in 2019-20 vis-a-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 March 2020 saw a record low of rupee as the pandemic started taking toll on investors’ sentiments. Table4B and Figure2B may provide a clearer picture.

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Source: RBI, FBIL, EEPC Research

Top 25 engineering export destinations in August 2020

We now look at the export scenario of the top 25 nations that had the highest demand for Indian engineering products during April-August 2020-21 over April-August 2019. (Table5)

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Source: Department of Commerce, Government of India

India’s top 25 engineering export destinations: Some observations
  • Seven out of 25 countries recorded positive cumulative growth in engineering exports during April-August 2020-21 over April-August 2019-20. Only five out of 25 countries recorded positive monthly growth in August 2020 over August 2019 which is a deterioration over last month’s performance where 14 countries recorded positive monthly growth in July 2020 over July 2019.
  • USA retained its top position of being the numero uno destination for India’s engineering products during April-August 2020-21 over April-August 2019-20, even though the growth rate turned negative for both monthly as well as cumulatively over the period.
  • Like before China has ranked as the second-largest destination for India’s engineering products during April-August 2020-21 over April-August 2019-20, registering high positive cumulative growth of more than 250 percent and positive monthly growth of over 187 percent.
  • Singapore ranked as the third-largest destination for India’s engineering products during April-August 2020-21 over April-August 2019-20, registering positive cumulative growth and also positive monthly growth in August 2020 vis-à-vis August 2019.
  • All the European countries among India’s top 25 engineering export destinations recorded negative monthly growth in August 2020 over August 2019 and negative cumulative growth during April-August 2020-21 over April-August 2019-20.
  • Among the ASEAN countries under the top 25 engineering exports destinations, Singapore, Malaysia, Vietnam, and Indonesia recorded significant positive growth during April-August 2020-21 over April-August 2019-20, barring Thailand which recorded negative growth during the same period.
  • The share of India’s engineering exports to its top 25 nations accounted for 77.6 percent of India’s total engineering exports in April-August 2020-21. This significant high share is indicative of the dependence of India’s engineering exports on traditional markets.
  • India’s engineering exports to its top 25 destinations during April-August 2020-21 over April-August 2019-20 recorded negative growth which is less in comparison to the negative growth in India’s total global engineering exports during the same period.

Region-wise India’s engineering exports

Table6 depicts region-wise India’s engineering exports for April-August 2020-21 as opposed to April-August 2019-20.

  • ASEAN+2 like the previous month ranked as the numero uno destination, the region with highest shipment of engineering products from India during April-August 2020-21 over April-August 2019-20 with a share of 20.4 percent of total engineering exports.
  • India’s exports to NE Asia and North America ranked second and third in global shipments of Indian engineering goods in April-August 2020-21 with a share of 17.1 percent and 16.8 percent of total engineering exports respectively.
  • • EU ranked fourth in global shipments of Indian engineering goods in April-August 2020-21 with a share of 16.6 percent, which is slightly higher in comparison to its last month’s share.
  • Like the previous month, Northeast Asia recorded high positive monthly and cumulative growth in exports of engineering products from India during April-August 2020-21 over April-August 2019-20. ASEAN+2 was the second region to revive and record positive monthly and cumulative growth during April-August 2020-21 over April-August 2019-20. All other regions recorded negative growth due to the vast disruption in commerce and trade on account of Covid19.
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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; Department of Commerce, Government of India

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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 August 2020 vis-a-vis August 2019 as well as April-August 2020-21 vis-a-vis April-August 2019-20. The data is given in Table7.

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Source: DGCI&S

Panel-wise engineering exports: some observations

  • After showing positive signs of recovery in July 2020, engineering exports once again witnessed significant decline by 8 percent mainly due to the Covid situation, while total exports declined in August 2020 to the extent of 12.6 percent y-o-y, higher than July’s 10.2 percent fall. Similarly, India’s engineering exports recorded a significant drop by 8 percent from $6273.8 million in August 2019 to $5769.9 million in August 2020, given the fact that the pandemic continues to impact global trade and economy negatively. In cumulative terms the first five months recorded a decline of 18.73 percent from $31,996.9 million in April-August 2019- 20 to $26,002.6 million in April-August 2020-21.
  • Among major panels, a steady growth was noticed in exports from ferrous and non-ferrous sectors which grew both in monthly and cumulative terms.
  • Exports of iron and steel recorded an increase of 12.5 percent in August 2020 compared to the same period last year on account of a rise in Chinese demand. This impacted the exports decline in the products of iron and steel segment, increasing the exports of the total group marginally by 2 percent. The total segment also recorded 11.5 percent jump in exports in cumulative terms.
  • The same pattern is also reflected in the case of other non-ferrous metals barring nickel, tin, and lead products as their exports jumped on the back of rising demand in China. Both monthly and cumulative export changes remained positive at 6.7 and 11.7 percent respectively.
  • Within industrial machinery, overall there was a decline in the monthly as well as cumulative exports of 15.1 and 31.8 percent respectively. Negative exports performance was observed in segments including industrial machinery for boilers (-31.9), IC engines (-17.3), pumps (-15.6), air-condition and refrigeration machinery (-25.1), industrial machinery for food processing and textiles (-10.5), and machine tools (-10.7) percent respectively, among others. In cumulative terms too, the growth was definitely negative given the significant decline in exports witnessed by most of the subsectors in the last few months.
  • The electrical machinery segment showed recovery in August 2020, similar to that observed in June and July 2020. In August too, exports grew by 4.9 percent as demand in top exports destinations remained buoyant. The sector grew in monthly terms while the growth still remained negative in cumulative terms, given the sharp decline in exports the sector faced in the first few months of the current fiscal.
  • Unlike other sectors which showed some signs of recovery in August 2020, exports in the entire automobile sector remained negative both in monthly and cumulative terms due to subdued demand in all major markets. Exports in automobiles fell by 37 percent in August 2020 and by 54 percent during April-August 2020-21 compared to the same period last fiscal.
  • While exports of aircraft, spacecraft, and parts declined in both monthly and cumulative terms, there was a significant rise (more than 77 percent) in August 2020 in exports of ships, boats, and floating structures. The increase was majorly attributed to rise in exports to Singapore and Mauritius.
  • In the rest of the engineering segments, while there was decline in almost all, slight increase in exports was noticed in the case of bicycle and parts (2.8 percent) during August 2020 compared to August 2019.

Engineering panels – country-wise analysis

We now analyse the performance of some of the important products during August 2020. We have taken the major panels and computed the top importers and sharp decline to get an idea of the current trade pattern. (Tables 12-20)

Export of iron and steel
  • China, Vietnam, and UAE were the top three importers of Indian iron and steel during April-August 2020-21 with market shares of 35.20, 11.92, and 6.51 percent respectively.
  • China recorded a monumental growth of 876.14 percent followed by the Philippines and Thailand at 151.28 and 138.19 percent respectively in imports of Indian iron and steel during April-August 2020-21 compared to April-August 2019-20.
  • Malaysia and Nepal experienced sharp fall of more than 50 percent in imports of Indian iron and steel during April-August 2020-21 compared to the same period last fiscal.
Export of products of iron and steel
  • USA, Canada, and UAE were the top three importers of India’s products of iron and steel during April-August 2020- 21 with 21.02, 5.81, and 5.8 percent shares respectively in India’s global exports of the same.
  • Egypt experienced more than 155 percent growth followed by Indonesia and Malaysia in import of products of iron and steel during April-August 2020-21.
  • Nigeria, France, and UK conceded substantial decline in imports by more than 45 percent for the product group from India during April-August 2020-21.
Export of products of iron and steel
  • USA was the largest importer of Indian industrial machinery during April-August 2020-21 with 15.52 percent share in India’s global exports of the product group. China and Germany were the two immediate followers with 5.8 and 5.46 percent shares respectively.
  • Georgia was the top importer with monumental growth of 341.29 percent followed by Togo, witnessing growth of more than 135 percent in imports of industrial machinery from India followed by Benin, Bahrain and Hungary during April-August 2020-21 over the same period last fiscal.
  • Among the major importers, Indonesia, Nepal, and Bangladesh recorded over 50 percent y-o-y decline in imports during April-August 2020-21.
Export of automobiles
  • Mexico, USA, and South Africa were the top three importers of India’s automobiles during April-August 2020-21 with 16.7, 10.15, and 8.07 percent shares in India’s global exports respectively over the same period last fiscal.
  • Sudan recorded a meteoric growth of more than 580 percent followed by Egypt, Brunei, and Austria with more than 100 percent growth in imports of the product group from India during April-August 2020-21 over the same period last fiscal.
  • Italy, Indonesia, Bangladesh, Nepal, and South Africa saw their imports of automobile fall by more than 60 percent during April-August 2020-21 compared to the 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-August 2020-21 with 19.7, 18.98, and 13.99 percent shares respectively in India’s global exports of the same.
  • China experienced massive growth of more than 296.86 percent followed by Singapore and Malaysia at 270.13 and 80 percent respectively in imports of non-ferrous metals and products during April-August 2020-21.
  • Italy, Mexico, and Nepal conceded substantial decline in imports by more than 50 percent for the product group from India during April-August 2020- 21 vis-à-vis the same period last fiscal.
Export of electrical machinery and components
  • USA, Germany, and Singapore were the top three importers of Indian electrical machinery and components during April-August 2020-21 with market shares of 37.81, 9.12, and 3.69 percent respectively.
  • New Zealand recorded massive growth of 1605.07 percent followed by Hong Kong and Japan at 278.88 and 165.97 percent respectively in imports of the product group during April-August 2020-21 vis-à-vis April-August 2019-20.
  • UK experienced sharp decline of more than 70 percent in imports in April-August 2020-21 when compared to April-August 2019-20. It was also the case for Poland, Singapore, Mexico, and Nigeria, which experienced more than 50 percent drop.
Export of aircraft and spacecraft
  • USA, France, and Singapore were the top three importers of India’s Aircraft and Spacecraft during April-August 2020-21 with around 33.5, 13.84, and 9.95 percent shares respectively in India’s total global exports of the product.
  • Ireland and UAE registered substantial growth of 426.19 and 395.31 percent respectively in imports of the product group from India during April-August 2020-21 as compared with the same period last fiscal.
  • On the flipside, demand for India’s Aircraft and Spacecraft from Malaysia, UK, USA, and Germany dropped by more than 45 percent on a y-o-y basis during April-August 2020-21 when compared to April-August 2019-20.
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 followed by Malaysia and Gibraltar. Their shares are 38.61, 15.01, 11.96, 9.43, and 6.9 percent respectively.
  • Though Malta recorded negligible imports in August 2020, the cumulative imports to Malta recorded meteoric increase as they had negligible import in April-August 2019-20. Indonesia registered substantial growth of 326.88 percent in imports of the product group from India during April-August 2020- 21 as compared to the same period last fiscal.
  • However, sharp decline of more than 68 percent was noticed in exports to UAE from India during April-August 2020-21 as compared with the same period last fiscal, while exports dropped to zilch for Cyprus, Liberia, and Norway.
Export of auto components
  • USA remained the top importer of auto components in April-August 2020-21 with a share of 22.94 percent. It was followed by Turkey, Germany, Vietnam, and Bangladesh with respective shares of 6.62, 6.02, 5.08, and 4.78 percent.
  • Congo recorded maximum increase of more than 200 percent followed by Slovenia and Uzbekistan in imports from April-August 2020-21 when compared to April-August 2019-20. However, absolute figures are not very convincing for any of the nations.
  • UAE, Brazil, and Thailand recorded significant decline of more than 50 percent in imports April-August 2020- 21 when compared to April-August 2019-20.
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Source: Department of Commerce Government of India

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Source: Department of Commerce Government of India

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Source: Department of Commerce Government of India

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

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Source: Department of Commerce Government of India

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Source: Department of Commerce Government of India

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Source: Department of Commerce Government of India

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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

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Source: Department of Commerce and CSO

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

  • Exports of products of iron and steel under chapter 73: fell by 13 percent in August 2020 and 29.7 percent in April-August 2020-21
  • Exports of nickel and products under chapter 75: fell by 18.8 percent in August 2020 and 64.7 percent in April-August 2020-21
  • Exports of tin and products under chapter 80: fell by 58.3 percent in August 2020 and 41.3 percent in April-August 2020-21
  • Exports of lead and products under chapter 78: fell by 43.1 percent in August 2020 and increased by 5.5 percent in April-August 2020-21
Data for ferrous and non-ferrous panels experiencing a decline in the month of August 2020 vis-à-vis August 2019
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Slump in products of iron and steel

Figure4: Slump in products of iron and steel exports, August 2020 v/s August 2019 ($ million)

MAZ0611202010194901632-oversight-FIGURE-4

Reason for slump

The industry for products of iron and steel is suffering for some time due to rising raw material prices. Increase in exports of iron ore and restrictions on import of steel from China, Vietnam, and South Korea have increased demand in the domestic industry leading to rising steel prices. This has increased the raw material prices for manufacturers of products of iron and steel and made them uncompetitive in the export market.

Slump in exports of nickel and products of nickel

Figure5: Slump in products of nickel exports, August 2020 v/s August 2019 ($ million)

MAZ0611202010194901632-oversight-FIGURE-5

Reason for slump

Nickel prices globally have risen due to tightening of supply from other international markets. This has affected the profitability of Indian exporters.

Slump in exports of lead and products of lead

Figure6: Slump in products of lead exports, August 2020 v/s August 2019 ($ million)

MAZ0611202010194901632-oversight-FIGURE-6

Reason for slump

Lead markets globally posted supply surpluses which may be the reason behind falling exports of the metal.

Slump in exports of tin and products of tin

Figure7: Slump in products of tin exports, August 2020 v/s August 2019 ($ million)

MAZ0611202010194901632-oversight-FIGURE-7

Reason for slump

Tin is majorly used in electronics and automobile industries, both of which have been facing demand decline due to the pandemic situation. Hence tin exports has contracted globally across major countries.months.

ENGINEERING IMPORTS

India’s engineering imports during August 2020 were valued at $5114.42 million compared to $8917.11 million in August 2019, registering negative growth of 42.6 percent in dollar terms.

Cumulative engineering imports during April-March 2019-20 were recorded at $100.55 billion as against $111.21 billion during the same period last fiscal, registering a fall of 9.6 percent.

The share of engineering imports in India’s total merchandise imports has dropped during August 2020 in comparison to August 2019 which has been estimated at 17.4 percent.

The monthly engineering import figures for fiscal April-August 2020-21 visà-vis April-August 2019-20 is depicted in Table21 as per the latest availability of data.

The monthly engineering import figures for fiscal April-March 2019-20 vis-à-vis April-March 2018-19 is given in Table22 as per the latest availability of data. Figure8 depicts engineering imports for April-August 2020-21compared to April-August 2019-20.

We now present the trend in two-way yearly trade for the engineering sector from 2014-15 to 2018-19 as well as the current fiscal 2019-20 in Table23. Figure9 depicts the yearly trend in engineering trade from 2014-15 to 2019-20

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Source: Department of Commerce, Government of India

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Source: EEPC India analysis

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Conclusion

Merchandise exports continued to decline y-o-y for the fifth straight month in fiscal 2020-21 and the decline was higher in August as compared to the previous month. Engineering exports, after registering y-o-y growth in July, fell once again. The growth in the previous month was partially led by a lower base of the previous year but that favourable base effect wore off in August. However, the rate of y-o-y decline for both merchandise as well as engineering exports moderated substantially over the month. Strategic relaxation of lockdown or strategic unlocking of economic activities definitely contributed to higher shipments.

In fact, a recent report by UNCTAD showed that the number of ships pulling into ports to unload and load containers rebounded in many parts of the world in the third quarter of 2020.2 Maritime shipping saw a dramatic slowdown earlier this year as lockdowns imposed aross the world restricted economic activities and travel. By mid-June, the average number of container vessels arriving weekly at ports worldwide had sunk to 8722, an 8.5 percent y-o-y drop. But new data show that, globally, the average weekly calls have started to recover, rising to 9265 by early August, just 3 percent below the levels of a year earlier. This offers a ray of hope for the gradual recovery of the global economy after the pandemic. The trend needs to be followed for the next few months to see if the recovery is stable or not.

Notes

  1. https://spendmatters.com/2020/08/28/commodities-roundup-lead-zinc-insurplus-china-further-consolidatessteel-sector-copper-mining-slowed-bypandemic/
  2. https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2466
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