Exports grow for the 9th month; Pulses acreage slides; Domestic air passenger traffic up by 17.6%

We are already seeing a 33% drop in pulses acreage, and we could witness a replay of 2015 events when runaway pulses inflation drove up food inflation.

By Abin Daya

Despite all what the flat-earth proponents might say, the world is surely round. I’m convinced of that! Things do come back a full circle.

64 years after it enacted the Air Corporations Act and nationalised the Air India, the government has decided that it does not want to be in the business of ferrying passengers over air any more. It is looking to privatise the airlines, and the Tatas, from whom the airline was originally taken over, seem to be the most likely suitor.

The performance of the domestic air passenger industry is one of the topics in today’s update. However, the main topic for today’s update is India’s export performance for the month of May 2017.

While export performance has remained positive for the past 9 months, the trade deficit is also rising, thanks to the even higher growth in imports. Growth in exports is not happening fast enough to achieve the target of $900bn by 2020. There are multiple factors, the biggest contributor being the slow-down in global trade.

The other topic included in today’s update is a report on the sowing activity in the ongoing Kharif season. Mishandling of the record output in pulses in the 2017 Crop Year has led to growers not being able to get better price for their produce, and this could result in many them moving away from the crop this season. We are already seeing a 33% drop in pulses acreage, and we could witness a replay of 2015 events when runaway pulses inflation drove up food inflation, and consequently consumer inflation.

Will be seeing you on the other side of GST next! Have a safe and efficient transition is what I can wish for all businesses. One can only hope that the disruption and the negative effect on business pass soon, and that we start enjoying the benefits real fast.

I also hope that with the daily change in fuel prices, we also see the benefits of the fall in crude prices. Prices of India’s basket of crude are currently at their lowest level in 45 weeks (in INR terms)!

Growth in exports for 9th consecutive month; imports growing at a much faster pace 

  • Indian exports have been on a growth streak since Sep 2016, when they had turned the corner after a long period of negative growth
  • Exports grew at 8% y-o-y during May 2017, compared to -0.8% growth in May 2016, and 19.8% achieved in Apr 2017
  • While growth has moderated from the double-digit performances in Feb, March and Apr 2017, it is still in the high single digits which lends consistency to the performance
  • However, imports have been growing at a much faster pace, and this has resulted in trade deficit hitting twice and even thrice their levels of the previous year

  • In fact, trade deficit at $13.84bn is the highest we have seen in quite some time
  • Average monthly trade deficit had come down from $9.84bn in FY 16 to $8.8bn in FY17, a fall of 10%, contributed by the record low levels of deficit in the early FY17
  • This is also supported by the average monthly figures of exports and imports during the corresponding period

  • While average monthly exports grew by approximately 5% between FY16 and FY17, average imports remained unchanged between the two FYs
  • When we look at the past 6 months, which is when the recovery has started to happen, the story that emerges is a little different
  • Average monthly exports have grown by 8% to $24.73bn, while monthly imports have grown faster at 13% from $31.7bn to $35.8bn
  • Monthly ticker of trade deficit has, consequently, gone up by more than a quarter – from $8.8bn to $11.1bn
  • These are again indicative of the fact that the drop-in trade deficit during FY17 had happened only due to a fall in imports, and not due to increase in exports
  • Monthly export figures have remained fairly constant between $22-25bn for quite some time and has not grown the way we have wanted to
  • Even including service exports, the per month figure is at $36bn for FY17, up from 34.75 bn of FY16
  • India’s export target of $900bn by 2020, which means monthly exports of $75bn, looks clearly unachievable at this rate, and this has prompted the Ministry of Commerce to re-visit the same as part of the revision to the Foreign Trade Policy
  • For the first two months of FY18, the growth in imports has happened mainly due to a spike in import of gold
  • The value of India’s gold imports in the first two months of FY18 exceeded that of the first 6 months of FY17

  • Concern of higher duties and taxes following the implementation of GST has led to higher volumes of gold import in the months preceding the roll-out
  • In value terms, gold imports have exceeded electronic items to become the second most valuable import item, after crude petroleum
  • While gold imports might moderate post-GST, it is likely that trade deficit for the year would break the declining pattern of FY17 and end higher in FY18

Pulses acreage slides under Kharif sowing

  • After record food-grain output of 272Mn tonnes in the 2016-17 Crop year, an increase of 8% from the previous crop year, India seems to be setting itself up for another record this year
  • Area under Kharif sowing has increased by 10% from 119.3 Lakh Hectares (LHa) during same time last year, to 130.8LHa this year

  • However, pulses, with estimated output of 22.14Mn tonnes in the 2017 Crop year – an increase of 35% - seems to be losing ground this year
  • Area under pulses cultivation has dropped drastically by 33% as compared to same time last year
  • Oilseeds acreage has gone up by 55% compared to last year, while area under cotton cultivation has increased by 30%
  • However, the acreage for both these crops still fall below the normal for this time of the year
  • The government seems to have lost the plot as far as pulses is concerned, with unhappy farmers deserting the crop leading to a likely replay of the 2015 price situation
  • Ineffective and inadequate procurement has led to the crop trading far below the MSP, thus leading to severe heartburn for the farmers
  • Farmer dissatisfaction has a very immediate feedback in terms of planted acreage, which is what we are seeing currently
  • On the other hand, procurement agencies are holding about 1.6Mn tonnes of stock, which they are exploring ways to dispose of
  • India is the largest producer and consumer of the crop, and it is unfortunate that we still do not have a comprehensive policy that covers production, procurement and distribution of pulses, instead opting for short-term measures which have limited impact

Domestic air passenger traffic up by 17.6% YTD

  • The domestic aviation industry tracks its performance on the calendar year basis, and
  • Year-to-date May 2017, it has carried 4.66Mn passengers as against 3.96Mn passengers during same period last year, an increase of 17.63%

  • For the month of May, airlines carried a total of 10.17Mn passengers, the highest monthly figure since 2015
  • The National carrier hasn’t been having a great time, though, as passenger numbers have declined by 2% y-o-y during May 2017, while that of other private airlines combined have grown 21%
  • Over the years, Air India has steadily lost market share – from 18.7% in Jan 2015 to just 13% in May 2017

  • During 2016, while Air India’s passenger numbers grew by 11%, other private carriers managed to grow their numbers by 25% - industry grew by 23% overall
  • Indigo remained the leader by having flown 4.2Mn passengers in May 2017, followed by Jet Airways with 1.55Mn passengers
  • However, it was SpiceJet which achieved the highest Passenger Load Factor (PLF), the measure of capacity utilisation
  • PLF for SpiceJet was at 94.3%, while that of Go Air was at 93% and Indigo, 91.1%; Air India achieved a PLF of 80.9%

Abin Daya the author of 'Basics of Trade: An India Perspective' is a FEMA expert, a career transaction banker, with close to 15 years of experience in corporate and transaction banking, in India.