At first look, the evidence is worrying. The value of the country’s goods exports in June dropped to an eight-month low of $33 billion, having fallen sharply by 22 per cent year on year. Moreover, the decline was not a one-off event. The June fall was the seventh monthly, year-on-year decline in nine months. That belies the government’s claim that the June 2023 growth figure was an outlier, one that resulted from a high base value, since June 2022 recorded a high figure of $42.3 billion.
Rather, the downturn appears to be a medium-term trend, marking the reversal of what appeared to be a remarkable post-COVID recovery in exports. During the April-June period in 2021, exports rose by 86 per cent when compared with the COVID trough. This growth seemed to be sustained in the next year as well, with the year-on-year export bump over April-June 2022 amounting to an additional 27 per cent.
However, over the three months ending June 2023, exports lost the momentum, shrinking by 15 per cent relative to the corresponding previous period.
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The government made much of the post-COVID export recovery and partially tied the creditable growth performance to that success. Some observers even said that India was emerging as the beneficiary of the China-plus-one strategy adopted by developed countries for sourcing for global markets. But with that optimism being challenged, government spokespersons are now hiding behind the argument that export growth has decelerated because of lower demand for Indian goods in major destinations whose economies had turned sluggish following hikes in interest rates to address inflation. The loser may be India, but the blame lies outside the country.
Oil product exports
A closer look at export trends, however, tells a different story. Explaining the post-COVID spike and sudden downturn in exports requires turning our attention to a particular segment of exports, consisting of oil products. In principle, oil product exports cannot be India’s forte given the country’s obvious and heavy dependence on crude imports for domestic consumption. But recent trends appear to contradict that view.
The value of the country’s oil product exports rose from $25.8 billion in the 2020-21 fiscal, which was also the COVID year, to $67.4 billion in 2021-22, up 162 per cent. Overall goods exports grew by 45 per cent. The recovery took oil exports well above the figure of $41.3 billion recorded in pre-COVID 2019-20.
In the year that followed, it appeared that there was no stopping of exports of oil products. In 2021-22, exports rose again by 44 per cent to touch $97.4 billion, even while aggregate goods export growth slowed to 6.9 per cent. Overall, increases in oil product exports accounted for 32 per cent of the increase in aggregate exports in 2021-22 and 41 per cent of that increase in 2022-23.
The obvious corollary of this is that the country has been performing poorly as an exporter of goods other than oil products. It recorded a sharp slowdown in the growth in non-oil exports. Non-oil exports declined by 2.2 per cent during 2020-21, and then rebounded to rise by 33.3 per cent in 2021-22, only to shrink by 0.3 per cent in 2022-23. This reflects the real weakness of India’s external trade—its failure to emerge as significant exporter of goods, let alone a global export hub, despite the provision of large subsidies through initiatives like the performance-linked incentive scheme.
Meanwhile, there is evidence that the boom in oil product exports cannot be sustained. The main contributor to the increases in export receipts in this area is a rise in global prices driven by higher crude prices. The international spot price of Brent crude fell from $71.23 a barrel in April 2019 to a COVID-year low of $18.38 in April 2020, badly affecting the value of our exports. But prices soon rose and touched $64.81 a barrel in April 2021 as COVID-driven constraints on economic activity were overcome and demand recovered.
A year later, exporters received another bonanza when crude prices spiked as the Russian invasion of Ukraine in February 2022 triggered speculation based on expectations that the war would drastically curtail supplies. The Brent spot price rose above $100, peaking at $122.71 in June 2022. However, it soon became clear that predictions of a supply shortage had been misplaced. The Brent crude price had fallen to $84.64 a barrel by April 2023.
What is noteworthy is that the quantity of oil product exports has not risen. According to data from the Ministry of Petroleum, it fell from 65.7 million tonnes in 2019-20 to 56.8 million tonnes in 2020-21, and then rose to 62.8 million tonnes in 2021-22, and touched 61 million tonnes in 2022-23.
Highlights
- Value of goods exports in June dropped to an eight-month low of $33 billion, down 22 per cent year on year.
- Oil product exports rose from $25.8 billion in 2020-21 to $67.4 billion in 2021-22.
- Non-oil exports fell by 2.2 per cent in 2020-21 but rebounded to rise by 33.3 per cent in 2021-22, only to shrink by 0.3 per cent in 2022-23.
Crude prices boost revenue
Thus, the success in oil product exports was based almost wholly on the volatility in oil prices in recent years. But prices can only come off the speculative highs following the post-COVID recovery and after the Ukraine invasion. Amid falling prices, growth in oil product exports has not just slowed but turned negative.
Oil product exports in the April-June 2020 grew 162 per cent year on year, and grew at a creditable 109 per cent in April-June 2021. However, the exports declined by 33 per cent in April-June 2023. With oil accounting for a substantial share of the increase in aggregate goods exports, this has resulted in a sharp slowdown in overall export growth as well.
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The real story on the oil front is not an increase in the total volume of oil product exports but a sharp rise in the profit margins of oil refiners, who were able to access Russian crude at deeply discounted prices. While European importers have cut out Russia as a source of imports as part of the sanctions on that country, they are willing to ignore the fact that exports from India are based on refining crude imported from Russia.
Given the strategic importance of India vis-a-vis China for the US, not much noise is being made about India’s role in facilitating Russian exports of crude. The result has been a sharp shift in the source of the country’s crude imports, with private refiners in particular cashing in on discounted prices to earn super profits from oil product exports in a changed geopolitical situation.
C.P. Chandrasekhar taught for more than three decades at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. He is currently Senior Research Fellow at the Political Economy Research Institute, University of Massachusetts Amherst, US.
