Blame China, US and Saudi Arabia for India’s export crisis

Tina Edwin
Tina EdwinJan 20, 2016 | 20:52

Blame China, US and Saudi Arabia for India’s export crisis

There is no one factor for the continued shrinking of India’s exports. You can blame China, Saudi Arabia, United States and in a small part, the unending crisis in West Asia for all the troubles that Indian exporters are facing. For 13 successive months, India’s exports have contracted, according to official data published by the ministry of commerce. Exports shrank 14.8 per cent in December 2015, compared to a year ago, as demand for India-made products from European Union, West Asia, China and even the US shrank. In the nine months from April to December 2015 period, exports contracted 18.1 per cent.


Trouble worsened for Indian exports with the dramatic slowing of the Chinese economy in the last calendar year, when it grew at its slowest in 25 years. Its economy still expanded 6.9 per cent in 2015 despite its size, which is no small feat when many advanced economies manage to expand just about one to two per cent annually. But the global economy had been spoiled by the double digit growth in China and the slowing of the world’s most populous country meant lower demand for various commodities the country sources from other nations to convert into manufactured products that are then exported. That has sent many natural resource-rich nations into a tailspin, with many projects being scaled down or shuttered, rendering thousands jobless.

Even before China weighed down the global economy, Saudi Arabia and the United States were forcing down crude oil prices. The fall in crude oil prices have wrecked the economies of many nations that were dependent on export earnings from oil and shrunk demand from these countries.

It all began with the United States’ desire to reduce its dependence on Arab oil for its energy needs. That led to a big step up in fracking, and the plan helped the US become an energy surplus economy. But, that hurt the interest of close ally and largest oil exporter, Saudi Arabia. The Arab nation is also the most influential member of the Organisation of Oil Producing Countries (OPEC), a cartel of oil exporters, which sets quotas for oil production in the member countries.


The OPEC has continued to maintain production of oil at over 30 million barrels a day by the members despite the surplus across the world. It hoped that the strategy of over-production will put a squeeze on fracking, which is an expensive method of extracting oil and gas trapped between rocks. It makes economic sense to undertake fracking when crude oil prices are high, about $60 dollars a barrel. Fracking may have reached a stage where it is no longer viable given the collapse of crude oil prices below $30 a barrel. With most sanctions on oil-rich Iran removed, further drop in oil prices to as much as $20 a barrel is not ruled out. There are even wild speculations that oil may drop to as little as $10 a barrel if this surplus continues.

The drop in the oil prices was both a blessing and a curse for India. It slashed India’s import bill by more than 40 per cent, which is a welcome development. But petroleum products are India’s largest item of export and the collapse of oil prices has pared export earnings from petroleum products by 50 per cent. That is a big blow for the country and the biggest reason for the contraction of export earnings.


Petroleum products are being exported to countries as diverse as the US, United Arab Emirates, Brazil, South Africa, Japan, South Korea, Netherlands and Singapore. Petroleum products account for more than half of India’s exports to Brazil. While oil prices have collapsed, so have India’s exports to that nation.

Like petroleum, the collapse of gold prices has had similar impact on India’s global trade. Though it has brought down import bill for gold, it has also hurt export earnings. More recently, the fall in gold prices has also led to increased demand for the precious metal in the country. Besides gold and other precious metals, pearls and precious stones are among the top exports from the country. Export of gold and precious metal jewelleries contracted 33 per cent between April and November 2015, according to disaggregated data of the commerce ministry. Exports to United Arab Emirates declined by a whopping 45 per cent.

Most of the countries that are grappling with economic decline are unlikely to recover anytime soon. Neither are petroleum prices likely to rebound to more reasonable levels this year, as the world drowns in surplus oil. This means India’s exports will face another challenging year. What also does not help is that China’s currency has devalued and that will make its exports far more competitive than India’s.

Last updated: January 20, 2016 | 20:52
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