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 India’s export
growth has sizzled over the last year, and continues to do so,
despite the recent slowing in developed markets and rising global
uncertainty
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However, India’s
export story is increasingly being questioned by skeptics who have
begun to cast aspersions on the credibility of the export
data
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Specifically,
they allege that India’s export data is not consistent either with
partner country import data or with port traffic data in
India
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We, therefore,
systematically analyze India’s bilateral trade data over the last
decade as well as compare it to port traffic data
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In contrast to
the conspiracy theorists, we find no evidence that the data is
being fudged
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While trade data
discrepancies have always existed, and exist for virtually all
other countries, discrepancies have actually reduced in 2010 and
2011 when India's exports began to surge
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Furthermore,
India’s export growth is not inconsistent with growth of port
traffic data, unlike what is commonly presumed
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Instead, India’s
recent export buoyancy can be explained quite simply by the fact
that a vast majority of India’s exports are now directed to
developing countries where activity remains more buoyant than
developed markets
Exports have been
India’s silver lining amid the gloom…
India has been beset
with macroeconomic challenges over the last year. With inflation
continuing to remain stubbornly high month after month, no signs
yet that the private investment cycle is poised to take off,
markets and policymakers are bracing for a significant
policy-induced slowing of economic activity – as the only viable
means to quell entrenched inflationary pressures.
In the midst of this
domestic doom and gloom, what has stood out for its consistently
sizzling performance over the last year, is India’s export growth.
Exports began to surge toward the middle of last year as global
activity ticked up and grew a whopping 38% (in value terms) over
the last fiscal. Despite slowing growth in some developed markets
in the first half of 2011 and rising global uncertainty, exports
have continued to grow buoyantly, averaging a stunning 55% (in
value terms) in the first four months of this fiscal. For the
longest time, skeptics were convinced that the export buoyancy was
on account of the feared withdrawal of a domestic export subsidy
scheme and therefore would not sustain. To their surprise, exports
have continued to surge month after month.
What this consistently
impressive export performance has done is to induce a moderation of
the trade and current account deficit (CAD) in the last fiscal (the
CAD fell to 2.6% of GDP in FY11 from 2.9% in FY10) and thereby prop
up the INR despite surging crude prices over the last
year.
….but questions on
data credibility have taken off the sheen
However, the sheen of
India’s remarkable export performance over the last year has been
consistently eroded by a growing chatter questioning both the
plausibility of India’s export story as well as the veracity of the
export data itself.
On the plausibility
front, skeptics are quick to point out that India’s export
performance over the last 2 quarters looks implausibly strong given
that growth and economic activity has slowed considerably in key
developed markets such as the United States and the Euro
Area.
On the veracity of the
data, itself, the allegations are more specific. They mainly
comprise two strands: (i) that India’s recorded exports to our
trading partners are significantly higher than the corresponding
imports from India that those countries record; and (ii) that
growth of container traffic at ports is significantly lower than
what should be implied by the export numbers. The resulting
implication being that India’s export story is not for real and
that the numbers are being fudged.
To judge the merits of
these allegations we used the IMF’s Direction of Trade Statistics
(DOTS) – the most comprehensive and widely accepted data source on
bilateral trade – to study India’s bilateral trade patterns over
the last decade. We also looked more closely at the container
traffic from various Indian ports and compared them to export
volume data from GDP statistics to see if they match up. So what
did this analysis throw up?
There is no trade
data discrepancy at a regional level
First off, there is no
discrepancy – at a regional level -- between the recorded imports
from India and India’s reported exports to countries in those
regions. Specifically, for the world as whole and for each
individual region, for all of calendar 2010 and the first quarter
of 2011 (the last point for which data is available), recorded
imports from India are greater than India’s exports to those
regions. This is to be expected since imports are typically
computed on a cif basis (including the costs of insurance and
freight) whereas exports are expected to be lower because they are
computed on a fob basis (sans these costs).
In sum, for the
calendar year 2010 and the 1Q2011 there is not a single region
where India’s recorded exports are higher than the partner region’s
recorded imports.
Bilateral trade data
discrepancies have existed since time immemorial…
Are there individual
trading partners for which these discrepancies exists (i.e. when
recorded imports from a country are lower
than the exports
recorded by India to that country)? Absolutely. But this is not a
phenomenon that started in 2010 when India’s exports began to
surge. It has existed across all countries (not just India) and for
time immemorial. As the IMF DOTS manual itself acknowledges, some
discrepancies are to be expected given the different ways in which
countries report their trade (differences in classification
concepts and detail, time of recording, valuation, and coverage, as
well as processing errors).
….and fell, not rose,
in 2010 !
If one is to believe
the contention that India’s export numbers are being fudged, what
we should observe is that the number of cases in which India’s
recorded exports are higher than that reported by our trading
partners should shoot up in 2010 and early 2011 during the time
when recorded exports surged.
Instead, we observe
exactly the opposite. Not only have the discrepancies always
existed, but they fell to an all-time low in 2010. Specifically,
among India’s 181 trading partners for which data is available, 25
percent of them recorded imports from India that were lower than
India’s recorded exports to them in 2002. By 2009, this discrepancy
had fallen to 14 percent and in 2010 the discrepancy was below 10
percent.
This pattern is
consistent even on a quarterly basis. Discrepencies in 4Q2010 when
the export surge began is limited to just 10 percent of the trading
partners and consistent with earlier quarters of the year. Exports
surged further in 1Q2011 but, in contrast, data discrepancies fell
to just 3 percent of the countries (though this new data will
likely be revised)
This phenomenon
exists in other countries too: the case of Brazil
Furthermore, and as
alluded to above, these discrepancies are not limited to just India
but true of a vast majority of countries covered in the
DOTS.
For the sake of
comparison, therefore, we decided to conduct the same analysis for
Brazil. Unsurprisingly, bilateral trade discrepancies exist there
too and, in fact, are even worse. Back in 2002, Brazil’s
discrepancies existed with about 22 % of its 183 trading partners –
almost identical to that of India. And, while these have reduced
over the decade, the discrepancies moderated much less than in
India. As such, by 2010 Brazil’s data discrepancies still existed
with 18% of its trading partners – almost double that of India. In
sum, there’s nothing particularly unusual about India’s data
discrepancies that warrant the kind of conspiracy theories that are
abound.
The repeat
offenders
Giving credence to the
view that these bilateral discrepancies exist, in part, on account
of the differing manner in which countries report trade patterns,
is the fact that most of the countries that are repeat offenders
exist in Africa or states that belonged to the former Soviet
Republic. This suggests that the trade reporting systems
(classification concepts and detail, valuation and coverage) are
likely structurally different from India in these countries,
leading to the same recurrent patterns of trade
discrepancies.
Guess what: port
container traffic data is not inconsistent with the export growth
data
In addition to
bilateral trade discrepancies, skeptics point to the fact that
India’s sizzling merchandise export growth over the last year is
not reflected in commensurate growth of port-traffic through which
the vast majority of our exports are routed.
This is because they
mistakenly compare export value data (nominal) with port container
tonnage and volume data (real). It is important to underscore that
the 38% sizzling export growth witnessed in FY11 was in value
terms, which includes price effects. Given the sharp increase in
commodity prices last year, one would expect a significant price
effect at play. It is therefore important to impute the growth in
export volumes and compare that to the growth of container
traffic.
Expenditure side GDP
data reveals that real export growth was 18% last year in FY11.
However, this contains both exports of manufactures and services.
While there is not enough granularity available in the GDP data to
disaggregate the two, anecdotal evidence suggests that volume
growth of IT and BPO service exports (which constitutes the bulk of
India’s service exports) was also broadly in this range. Given
this, assuming 18% growth of merchandise export volumes is not a
bad proxy. The other issue to contend with is that GDP real growth
may overstate the growth of volumes if there are quality/technology
improvements which contribute to value-add, but we will abstract
from those issues for now. FY11 GDP data also indicates that gross
imports grew at 9% in FY11, such that total trade volumes (on a
weighted average basis) grew close to 13 % in FY11.
How does this compare
to increases in container tonnage at ports? Very well, actually.
The growth in container tonnage (both exports and imports combined,
since the breakdown is not available) was almost identical at 12.6
% for the 12 large government controlled ports in the country
(controlling about 65 % of the traffic). Some newer privately run
ports (controlling another 10 percent of the traffic) showed
significantly higher growth in container tonnage (25-30 %) for the
last fiscal. In sum, the growth of trade volumes last fiscal was
not at all inconsistent with the increase in container traffic
growth – in contrast to what is routinely, and casually,
assumed.
Shed the conspiracy
theories: it’s new products and markets, silly!
Instead of relying upon
conspiracy theories – which are not supported by the data --
India’s buoyant export performance over the last year can be
explained much more simply – a move to newer markets and newer
products over the last few years.
Key to the skepticism
about India’s export performance is the disconnect between slowing
growth in the US and euro area on the one hand and India’s
continued export buoyancy on the other. But this can be explained
quite easily. Contrary to conventional wisdom, India’s exports to
developed markets has fallen appreciably over the last decade.
Specifically, more than 55% of India’s exports was directed to
advanced economies in 2000. A decade later, however, advanced
economies account for just over a third of India’s exports.
Instead, the vast majority of India’s exports are now directed to
other developing countries (particularly in Asia) as well as OPEC
countries. The growth slowdown in these economies has been far less
pronounced than in the developed markets.
Similarly, the
structural composition of what India exports has changed sharply.
India’s conventional exports (leather, textiles, gems) have been
increasingly replaced by the higher valued- added manufacturing
exports including engineering goods, pharmaceuticals and chemical
products which now account for the bulk of the export basket. These
are shown to have a far greater sensitivity to changes in global
demand – in contrast to India’s traditional exports – and,
therefore, it is not surprising to see sharp growth in these
sectors over the last year as growth in the new export markets has
remained strong
Summing it all up:
the proof of the pudding is in the eating
In sum, allegations
that India’s export numbers are being fudged are inconsistent both
with partner country data as well as with port traffic data in
India. Furthermore, the proof of the pudding is in the eating. If
indeed, the export numbers were being cooked, then the observed
correlations between exports and other macroeconomic variables in
India (IP, inflation) which have risen in recent years – as
fast-growing exports increasingly strain industrial capacity and
pressure core inflation – would have broken down, which is not the
case. It is no co-incidence, for example, that core inflation
surged in the first two quarters of 2011 – a time when domestic
demand had begun to slow but export growth was surging. All told,
instead of conjuring up more conspiracy theories, we should be
celebrating the new-found dynamism of India’s export
sector.
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