Good news at last for Indian exporters: upswing in US economy bodes well

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The upswing

• The US economy has grown 1.4% between October and December 2015 - faster than the estimated 1%

• It grew at 2.4% over the entirety of 2015, which is good news for the world economy

The significance

• Indian exports have been declining for the last 15 months in a row

• But a growth in the US means demand for Indian-made goods will increase again

More in the story

• Which sectors will benefit the most among Indian exports?

• How this may help the NDA govt finally create jobs

After 15 successive months of decline, there is some good news for Indian exporters.

The US economy has grown 1.4% in the fourth quarter (October-December 2015) - a faster pace than the previously estimated 1%.

The growth in the US has been fuelled by stronger household spending. And even though the growth is less than the 2% seen in the third quarter, it raises hope for Indian exporters, who have been struggling with a decline in global demand for their products.

Read- Declining exports, few jobs, falling rupee: Is this 7.5% growth, Mr Jaitley?

According to Reuters' consumer spending report, which takes into account more than two-thirds of US economic activity, the American economy grew at 2.4% over the entirety of 2015, and not at the 2% reported last month. A greater consumption of services than previously estimated accounted for the revision.

"Spending is being supported by a tightening labour market, which is steadily lifting wages, and rising house prices. Gasoline prices around $2 per gallon are also helping to underpin household discretionary spending," the news agency's report states.

But, the question is, what kind of support will the US provide to the Indian exports?

US share grows

SC Ralhan, president of the Federation of Indian Exporters Organisation (FIEO), says: "Exports to the US have done well, even as our exports to other countries have suffered. The US is an important market for us and its recovery is good news for Indian exports, which have been falling for the last 15 months."

The US economy grew 1.4% between October-December 2015, faster than the previous estimate of 1%

The cumulative value of exports between April 2015 and February 2016 was $238.42 billion, down 16.73% as compared to the $286.31 billion recorded in the corresponding period last year.

The US share in India's exports has increased from 13.67% in 2014-15 to 15.41% in April to December 2015. This will increase further for the whole year if the trend of improving GDP numbers continues in the US.

Which sector will benefit the most?

India's major exports to the US include textiles, precious stones and metals, pharmaceuticals, fuel and oil, machinery and organic chemicals.

Textiles exports from India have remained flat in 2014-15. Data available from the Confederation of Indian Textile Industry (CITI) between April-October shows $3,704.62 million, as against $3,704.97 million for the corresponding period last year.

Even the growth in garment exports was lower than last year. But according to the Centre For Monitoring Indian Economy: "In 2016-17, the growth in outbound apparel shipments is set to accelerate. This is likely to be aided by a sustained demand for apparels from the US and the UAE."

Also read- Lost jobs, shut factories: India's dark export story

USA accounts for 30% of global textiles consumption. If the US economy bounces back from its slump, it will mean labour intensive sectors like garments and textiles will witness increased demand.

According to DK Nair, former secretary general of CITI: "Indian exports were struggling due to a slowdown in the European Union. But a revival in the US economy will mean good times for the Indian industry. The US is such a huge market for textiles and clothing that it can revive the demand for raw material like cotton and cotton yarn from India."

A word of caution

Even as exporters cheer the revival in the US economy, R Nagaraj, professor of economics at the Indira Gandhi Institute of Development Research, cautions against big celebrations.

"This is good news indeed, but the growth rate is still anaemic compared to the pre-financial-crisis trend of about 2.5% per year. As the US is world's largest economy, accounting for a quarter of the world's GDP, an improvement in its performance will have a positive effect on the rest of the world," he says.

"Whether India will benefit from the improved US growth rate is a moot point, because the US's imports from India are marginal. India's trade with the US boomed in IT services during the last decade, which are not doing very well now. Moreover, the US has imposed a tax on IT outsourcing as part of the 'Buy America' law enacted by the Obama administration, which prevents India from getting a bigger slice of the US outsourcing business."

US share in India's exports has increased from 13.67% in 2014-15 to 15.41% in April to December 2015

Looking at the overall numbers that the US accounts for in India's exports, a revival of the US economy does not mean much for the country in terms of value.

But then again, sectors like engineering and textiles are labour intensive, and can provide big relief to Narendra Modi's NDA government, which has struggled to generate jobs in the past two years due to the slowdown in exports.

Edited by Shreyas Sharma

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