Pushkar Mukewar, Co-Founder, Drip Capital talks to
ET on how the demand and supply changed for India due to COVID-19, the timeline of expected recovery, and a sliver of hope for India.
Economic Times (ET): What has been the state of Indian exports this calendar year?
Pushkar Mukewar (PM): Since the start of 2020, India’s exports have gone through some severe upheaval. After starting stable in January, February saw a good uptick in export figures, but March and April have seen severe drops in India’s trade volumes, on account of the global COVID-19 pandemic and the lockdowns imposed in various countries, including India, to control its spread.
The Ministry of Commerce recently released the data for April exports, which gives quite a gloomy picture of Indian exports. India reported exports worth $27.96 billion in April 2020, which is a 36.65% year-on-year fall when compared to April 2019. A bigger cause of worry is the steep drop in India’s merchandise exports to $10.36 billion, a year-on-year plunge of 60.28%.
India has traditionally been a major player in sectors like mineral fuels, gems & jewellery, pharmaceuticals, chemicals, textiles, engineering goods and food commodities in the global market. With the complete economic impact of the COVID-19 pandemic still unknown, one can only wonder what the rest of the calendar year will present. However, a variety of factors such as reopening economies worldwide, and a gradual return to normalcy for Indian industry, indicate a likelihood of recovery by Q3 2020.
ET: What is the nature/composition of our exports and what was it like in 2019?
PM: India has been a global leader in the exports of specific sectors like mineral fuels, gems & jewellery, pharmaceuticals, chemicals, textiles, engineering goods and food commodities, and is a key player in the global value chain. According to one of Working Paper series, the country exported $324 billion of exports in 2019 across these and other sectors. The concentration of Indian exports under non-essential and luxury segments poses a problem. In a plus, however, India’s exports of essentials such as food commodities and pharmaceuticals has seen a steady uptick and is likely to be a key driver of trade in the coming months as well.
ET: What is your assessment on the impact of Covid-19 on exports around the world?
PM: While the current focus of governments across the globe remains on containing the spread of the virus, economic tremors will likely continue to be felt in the coming months. Depending on the proactive measures of respective governments, the economic impact of the pandemic is going to be staggered for different industries and sectors.
Global trade is – and will likely remain – a key victim of this outbreak, with the potential for widespread economic mayhem across international supply chains. Factors like supply chain disruption, demand shock and the looming recession are bound to negatively impact import-export activities, which are yet to fully recover from the recent trade wars.
ET: Indian exports have been falling month on month. What would be the impact of the nationwide lockdown?
PM: Given the current conditions global economies are facing, the market’s mood is dampened, and demand is subdued. Lockdowns in several key supplier markets have disrupted supply chains, and order cancellations have further pulled down Indian exports.
According to our Working Paper series, with staggering gaps in international logistics and supply chains, it is unlikely that global trade will be able to rebound to its pre-COVID-levels anytime soon. The ongoing lockdown and its resultant issues with labor, domestic supply chains and consumer demand mean that Indian exports are likely to take a while to recover. Recent reports suggest that orders from key markets like the US and Europe are starting to come in, but most expert estimates indicate a timeline of up to six months or more for exports to get back on track.
ET: On a global scale, several countries were in a lockdown, but some are now seeing gradual lifting. Countries across much of Europe and several states in the US are now opening up. How will Indian exports do in such a scenario?
PM: As mentioned earlier, there appears to be a slow revival in orders from some of these key markets. As economies reopen around the world, there is a definite opportunity for Indian exporters to leverage increased demand for growth, particularly as more and more buyers seek alternatives to China. With the right support from the Indian government, our exports can look forward to a recovery – provided the problems discussed above with labour supply and supply chains are resolved.
Additionally, many exporters have pointed out that they hold ample inventory to restart their businesses once the restrictions imposed by the lockdown are lifted. EU and US buyers are already beginning to look for suppliers, and with India catering heavily to these markets, a demand-led recovery may be on the cards for Indian exports.
ET: USA is the biggest export market for India, and as they continue to tackle the impact of COVID-19, how is the import likely to pick up?
PM: Yes, the US is one of the largest export markets for India and we export roughly $50 billion worth of shipments annually to them. According to Drip Capital’s internal analysis of recent US import data, between January and April 2020, the inflow of essential goods has been as usual. However, on the non-essential and luxury goods front, imports have come down by 18% and 35%, respectively.
Additionally, in April, Chinese industries and ports have hummed back into business and resumed exports of long-delayed orders. On the other hand, other US trading partners, including India, continue to remain under lockdown, even as the US government is getting into an increasingly tense war of words with the Chinese leadership. This combines to present a mixed scenario, with a lot of uncertainty about possible outcomes.
Having said that, of the $50 billion worth of exports from India to the US, nearly 21% fall under the ‘essential goods’ classification. This could be good news for Indian exporters looking to resume business with their US buyers in the aftermath of this pandemic.
ET: When do you think Indian exports can make a meaningful recovery?
PM: Drawing a parallel from the global financial crisis of 2008, Indian exports have largely suffered historically due to subdued overseas demand. In the aftermath of the 2008 crisis, India’s exports market took about a year to touch pre-crisis levels, and roughly a year-and-half to resume the growth at pre-crisis rates. This time too, it may be safe to expect recovery of business volume for commodities such as food, marine products, etc. to be quicker (even by the end of this quarter), whereas cyclical goods such as textiles will likely take longer.
As global economies continue to stabilise, our research indicates that cyclical exports such as textile may start to see a recovery later in the year. The upcoming Christmas/holiday season in the US and the EU, as well as events like the Chinese New Year, usually drive consumer demand for these commodities, which could boost exports in the longer term. Additionally, India is one of the major players in global trade. The country is a leading exporter of agricultural and other essential commodities such as pharmaceuticals, which continue to be in demand. This could help India’s exports sector along the way to a meaningful recovery.
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