India’s merchandise exports for May 2015 have fallen by 20% in dollar value compared to last year—from $28 billion in May 2014 to $22.3 billion—a drop of $5,652 million.
Some see this as a case of falling global demand made worse by India’s infrastructure bottlenecks. But Gateway House’s analysis suggests that this is a misreading of the data. In fact, the trade data is actually more favourable to India as compared to the past. The bulk of the fall in exports is a result of price fluctuations; it is not due to any underlying changes in demand or industrial activity.
India is among the major exporters of petroleum products globally, and one of the largest importers of crude oil. These exports come from India’s excess capacity, beyond its immediate needs, to refine crude petroleum into products such as diesel, petrol, and aviation fuel. So India imports extra crude oil, processes it into refined products and after meeting its own needs, exports the surplus products to markets across the world.
India produced 219 million tonnes of petroleum products during financial year 2014-15—of which it exported 65 million tonnes. This is approximately 40 million barrels of petroleum products being exported every month. A fall in the price of crude oil and its derivative products will therefore also show up as a fall in India’s exports.
But this number will be misleading, because it is not only exports which are down—the crude oil which was imported to make these products has also become cheaper and will show up as reduced imports.
In fact, India imports much more petroleum than it exports—189 million tonnes during financial year 2014-15, or three times higher than the country’s exports. This is consumed by the domestic economy as fuel for trucks, cars, trains, and aircraft. The fall in the value of crude oil represents a far greater saving for the economy than the fall in the export value of petroleum products
Crude oil prices have moved from $100-plus per barrel a year ago to $60-65 per barrel now. This fall is reflected in the trade data. India’s export of petroleum products in May 2014 was $5,935 million, which fell to $2,428 million in May 2015—a difference of $3,508 million. This one item accounts for 62% of the net fall in India’s exports during the month. The fall doesn’t necessarily indicate that India’s oil exports have fallen—it only means that the value of these exports is down even though the volumes may be unchanged.
Production figures from the Ministry of Petroleum for May are not yet available, but the previous month’s data underlines this point: in April 2015, India’s petroleum exports were down by $2,398 million as compared to April 2014—a fall of 46%. This contributed to a 14% drop in India’s merchandise exports for that month. However, Indian oil refineries processed almost the same volume of crude oil. So even though the physical performance of the industry was almost unchanged, the value of exports fell sharply, and this was also reflected in that month’s overall trade figures.
The present pessimism about trade figures is thus a false narrative, and this reinterpretation of the data should set the record straight.
Amit Bhandari is Fellow, Energy & Environment Studies, Gateway House.
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