India's Foreign Trade: 2007-08 (April-February)*

The Directorate General of Commercial Intelligence and Statistics (DGCI & S) has recently released provisional data on India's merchandise trade for April-February, 2007-08 and commodity-wise details for April-December, 2007. This review is based on these data.

HIGHLIGHTS

• India's Merchandise exports during February 2008 recorded a growth of 46.8 per cent, substantially higher than 7.1 per cent during February 2007. The overall exports at US $ 138.3 billion during April-February, 2007-08 increased by 22.8 per cent, thereby almost maintaining the growth attained a year ago (23.2 per cent).
  
  
• During February 2008, imports registered a growth of 30.5 per cent as compared with 22.6 per cent in February 2007. The overall imports during April-February, 2007-08 at US $ 210.8 billion maintained higher growth at 30.1 per cent than a year ago (25.2 per cent).
  
  
• Imports of petroleum, oil and lubricants (POL) during April-February, 2007-08 moderated to 26.4 per cent from 31.2 per cent a year ago. Non-oil imports continued to register faster growth at 31.8 per cent (22.6 per cent a year ago) and contributed about 72 per cent to the overall growth in imports during April-February, 2007-08.


• The average price of Indian basket of crude oil during April-February, 2007-08 stood at US $ 77.4 per barrel (ranging between US $ 65.2 and  US $ 91.8 per barrel),  higher by 23.8 per cent than the average price a year ago (US $ 62.5 per barrel).

• The trade deficit during April-February, 2007-08 at US $ 72.5 billion, was higher by US $ 23.1 billion than during April-February, 2006-07 (US $ 49.4 billion).

Exports

India's merchandise exports during February 2008 amounted to US $ 14.2 billion registering a growth of 46.8 per cent. This was the highest monthly growth rate in exports recorded during the financial year 2007-08 (Chart 1, Statement 1). The overall exports during the first eleven months of the financial year 2007-08 (April-February) at US $ 138.3 billion, were higher by 22.8 per cent, which was closer to the growth of 23.2 per cent registered a year ago. The exports during April-February, 2007-08, constituted about 86 per cent of  the target fixed by the Ministry of Commerce and Industry, Government of India (US $ 160 billion) as compared with 90 per cent a year ago (US $ 125 billion) (Table 1, Statement 2).

For the financial year 2008-09, Ministry of Commerce and Industry, in the Annual Supplement (2008) to the Foreign Trade Policy (2004-09), has fixed an export target of US $ 200 billion, which is higher by 25 per cent than the target for 2007-08 (US $ 160 billion). The promotional and sectoral measures announced in the Annual Supplement aim at further strengthening the potential to the export growth (Box).

The commodity-wise exports data available for 2007-08 (April-December, 2007) showed deceleration in export growth in respect of most of the principal product groups, except agricultural and allied products, iron ore, and gems and jewellery.  Agricultural and allied products, engineering goods, gems and jewellery and petroleum products together contributed about 70 per cent of export growth during April-December, 2007 (Chart 2).

Exports of primary products during April-December, 2007 recorded a growth of 30.3 per cent as compared with 18.5 per cent a year ago, on the back of higher growth in agricultural and allied products (34.9 per cent) and iron ores (26.9 per cent). Within agricultural and allied products, higher growth rates were witnessed in the exports of rice, spices and oil meal, while coffee, wheat and cashew showed decline.

In the manufactured exports, engineering goods, chemicals and related products, and textiles and textile products witnessed moderation in growth, whereas exports of gems and jewellery displayed sharp acceleration. Engineering goods exports decelerated to 19.7 per cent during April-December, 2007 from 38.4 per cent during April-December, 2006, mainly due to the decline in the exports of iron and steel, and moderation in machinery and instruments and electronic goods. Chemicals and related products moderated to 15.9 per cent from 21.3 per cent a year ago, following decline in the exports of plastic and linoleum, and deceleration in basic chemicals, pharmaceuticals and cosmetics.

Exports of textiles and textile products showed a modest increase of 7.9 per cent during April-December, 2007 (8.5 per cent a year ago). Among the major product groups, man-made yarn, fabrics, made-ups recorded higher growth, while readymade garments  and man-made staple fibre decelerated, and natural silk yarn, fabrics, made-ups and carpets declined. According to the US Office of Textiles, during 2008 (January-February), India's exports of textiles and apparel products to the US increased by 8.3 per cent as against a decline of 4.0 per cent a year ago. As against this, China's exports of textiles and apparel products to the US during this period declined by 2.5 per cent compared with an increase of 53.1 per cent a year ago.

Gems and jewellery exports during April-December, 2007, registered a sharp acceleration to 25.6 per cent from 2.0 per cent a year ago. According to the latest information from Gem and Jewellery Export Promotion Council, exports of gems and jewellery during April-February, 2007-08 attained a growth of 23 per cent over the previous year.

Exports of petroleum products during April-December, 2007 recorded a growth of 37.3 per cent, sharp deceleration from 74.6 per cent a year ago. The UAE, Singapore and the Netherlands were the main markets for India's petroleum products.
Destination-wise, the US continued to be the single largest market for India,

Box: Annual Supplement 2008 to Foreign Trade Policy 2004-09: Major Policy Initiatives (Contd.)

and inclusion of specific items in IT hardware sector for benefits under high tech product scheme.
Focus Market and Product Schemes: The coverage under Focus Market Scheme (FMS) has been extended and additional 10 countries have been included. FMS/FPS will be calibrated, so that products of general high export intensity, presently not covered under FPS, but which have low penetration in countries and not covered under FMS, will be considered for export incentives as a focus product for that particular country.

Export Facilitation Measures: The export facilitation measures include payment of interest to exporters, if refund of duties is delayed; extension of facility of export on consignment basis to the export of coloured gem stones; free disposal of waste/scrap/ remnant generated in manufacturing or processing  activities of a special economic zone (SEZ) unit/developer/co-developer in domestic tariff area (DTA), subject to payment of applicable customs duty; withdrawal of requirement of submission of non-availment of MODVAT certificate in specified cases; recognition of Surat Hira Bourse as port of export for jewellery; and inclusion of some additional ports under export promotion schemes for reducing costs and adhering to delivery schedules.

Measures to Reduce Transaction Cost: Electronic Data Interface (EDI)-enabling of Advance Authorisation Scheme and EPCG Scheme through electronic message exchange to do away with present requirement of physical verification and registration at Customs end; treating all existing EDI ports as a single port and there will be no requirement of telegraphic release advice (TRA) under Advance Authorization Scheme; payment of duty under EPCG scheme through debit of duty credit scrips under promotional schemes of DEPB; and reduction in application fee for duty credit scrips and for EPCG authorizations and for importer-exporter code number and reduction of fee in case of supplementary claims.

Procedural Simplification: The procedural simplifications announced in the Supplement include allowing EOUs to pay excise duty on monthly basis, instead of the present system of paying duty on consignment basis, subject to conditions; allowing pro-rata enhancement/ reduction in cost insurance freight (cif) value or duty saved amount beyond 10 per cent under EPCG scheme; treating certificate of registration as exporter of spices issued by Spices Board as Registration-Cum-Membership Certificate; issuance of installation certificate by Central Excise under EPCG scheme within 30 days of intimation by exporter; endorsement of supply invoice by Central Excise within 21 days of supply to facilitate faster clearance of deemed export benefits; increase in limit of duty free import of samples; extension of time period for reimport of branded jewellery remaining unsold; and raising of value of jewellery parcels through foreign post office.

The government has fixed an export target of US $ 200 billion for the current financial year (2008-09), which is higher by 25.0 per cent than the target set for the year 2007-08 (US $ 160 billion). The sectoral initiatives and other promotional measures announced in the Annual Supplement are expected to give impetus to growth potential of India's exports, while the  expected  slowdown in world income and global trade in 2008, are some of the downside risks on the export front.

Box: Annual Supplement 2008 to Foreign Trade Policy 2004-09: Major Policy Initiatives

The Government of India had announced in 2004 the five year Foreign Trade Policy (2004-09) with the twin major objectives of: (a) to double India's share in global merchandise trade within five years, and (b) to use trade policy as an effective instrument of economic growth and employment generation. During the first four years (2004-08) of the Trade Policy period (2004-09), India's merchandise exports attained new heights from US $ 83.5 billion in 2004-05 to US $ 138.3 billion in 2007-08 (April-February), recording  an average annual growth rate of about 25 per cent. India's share in world exports has increased from 0.8 per cent in 2004 to 1.0 per cent in 2007 and India's rank as world merchandise exporter improved from 30 in 2005 to 26 in 2007.

The Annual Supplement (2008) to India's Foreign Trade Policy (2004-09), announced by the Government of India on April 11, 2008, aims at further strengthening of the export sector by introducing sectoral initiatives, promotional measures, relief to sectors affected by rupee appreciation, measures to reduce transaction cost and procedural simplification. The major policy initiatives are as under:

Promotional Measures: The customs duty under the Export Promotion Capital Goods (EPCG) scheme has been reduced from 5 per cent to 3 per cent to promote modernization of manufacturing and services exports. The EPCG scheme allows import of capital goods for preproduction, production and post-production, subject to certain export obligation. Average export obligation under EPCG for Premier Trading Houses, as an option, would be calculated, based on the average of past 5 years' exports, instead of the existing criterion of  3 years. The Duty Entitlement Pass Book (DEPB) scheme is extended upto May 2009. Income tax benefit to 100 per cent export oriented units (EOUs), available under Section 10B of Income Tax Act, is extended for one more year, beyond March 31, 2009.

Relief Measures to Exporters: The Government granted interest subvention of 2 per cent on export credit to specified sectors affected by rupee appreciation, such as, textiles, leather products, engineering products on July 12, 2007, and it was extended upto March 31, 2008. Additional subvention of 2 per cent was granted on November 29, 2007 to some of the sectors, such as, marine products, handicrafts and textiles. The Annual Supplement (2008) has extended the interest rate subvention to these sectors for one more year. Average export obligation is also reduced under EPCG for the affected sectors.

Sectoral Initiatives: To promote exports of sports and toys, which are mainly produced by the unorganized labour intensive sector, an additional duty credit scrip of 5 per cent has been announced, over and above the benefits under the Focus Product Scheme (FPS). To neutralize the disadvantage of high incidence of freight cost suffered by fresh fruits and vegetables and floriculture on the export front, the Annual Supplement announced an additional duty credit scrip of 2.5 per cent to these sectors, over and above the normal benefit available under Vishesh Krishi and Gram Udyog Yojana (VKGUY). Specific initiatives have been announced for exports from sectors, viz., IT hardware, telecom, toys and sports goods, such as, setting up of a new Export Promotion Council for telecom sector with a share of 13.4 per cent in the overall exports (15.3 per cent a year ago). The other major destinations were the UAE (10.1 per cent), China (6.0 per cent), Singapore (4.5 per cent), the UK (4.3 per cent ), Hong Kong (3.9 per cent), the Netherlands (3.2 per cent) and Germany (3.2 per cent). Region-wise, exports to the EU, Eastern Europe and Asian developing countries accelerated, while those to North America, Asia and Oceania, OPEC, African developing countries and Latin American countries  moderated.

Imports

India's merchandise imports during April-February, 2007-08 at US $ 210.8 billion recorded a higher growth of 30.1 per cent than 25.2 per cent in April-February, 2006-07. While petroleum, oil and lubricants (POL) imports showed moderation (from 31.2 per cent in April-February, 2006-07 to 26.4 per cent in April-February, 2007-08), non-oil imports continued to show accelerated growth (from 22.6 per cent to 31.8 per cent).

The moderation in POL imports during April-February, 2007-08 was mainly due to deceleration in the quantity of oil imports, while crude oil prices remained elevated. The growth in volume of oil imports during April-December, 2007 decelerated to 7.5 per cent from 21.5 per cent during April-December, 2006. The average price of Indian basket of crude oil during April-February, 2007-08 stood at US $ 77.4 per barrel (ranging between US $ 65.2 and  US $ 91.8 per barrel), an increase of  23.8 per cent over the price a year ago (Table 2).

Non-oil imports during April-February, 2007-08 accelerated to 31.8 per cent (22.6 per cent a year ago)

in the wake of strong growth in the import of capital goods and gold and silver, which together contributed about 50 per cent to the growth in non-oil imports (Chart 3 and Statement 5).

During April-December, 2007, capital goods imports increased by 31.6 per cent (35.9 per cent a year ago), while gold and silver grew by 34.4 per cent (24.5 per cent). According to the World Gold Council, gold prices in US dollar terms (London pm fix) were higher by 18.2 per cent during April-December, 2007 than 3.0 per cent a year ago. The other major non-oil products which showed accelerated growth in imports during the period were coal, coke and briquettes; pearls, precious and semi-precious stones; chemicals; and iron and steel.

Source-wise, China was the main source of imports, constituting 11.5 per cent of total imports during April-December, 2007. The other major sources were Saudi Arabia (7.8 per cent), the US (5.8 per cent), the UAE (5.6 per cent), Switzerland (4.6 per cent), Iran (4.2 per cent), Germany (3.9 per cent) and Australia (3.5 per cent) [Statement 6].

Trade Deficit

The trade deficit during April-February, 2007-08 stood at US $ 72.5 billion, which was higher by US $ 23.1 billion than during April-February, 2006-07. The trade deficit on oil account during April-December, 2007 amounted to US $ 34.7 billion, higher by US $ 5.2 billion than a year ago.

Global Trade

According to the World Trade Organisation (WTO) press release dated April 17, 2008, world merchandise exports growth, in real terms, slowed down to 5.5 per cent in 2007 from 8.5 per cent in 2006, on the back of reduced global economic growth (from 3.7 per cent in 2006 to 3.4 per cent in 2007) and weaker demand in the US, Europe, Japan and net oil importing developing countries in Asia. In dollar terms, world exports rose by 15 per cent in 2007, which was marginally lower than 15.3 per cent in 2006 (Table 3). Exports of industrial countries in 2007 increased at higher rate of 13.6 per cent as compared with 12.4 per cent in 2006, whereas growth of emerging and developing economies was lower at 16.8 per cent in 2007 than 19.1 per cent in 2006.

* Prepared in the Division of International Trade, Department of Economic Analysis and Policy, Reserve Bank of India. Previous issue of the article was published in RBI Bulletin, April 2008.