Engineering exports recorded around 3.3% cumulative growth year-on-year during the first five months of fiscal 2024-25

Observation: Excluding the export of iron and steel, engineering exports recorded a higher growth both on a monthly as well as cumulative basis as shown in the table above. Exports of Iron and Steel conceded 2.1 percent year-on-year decline in September 2024 and 26.1 percent year-on-year decline during April-September 2024-25

Source : DGCI&S, Govt. of India

The following table depicts region wise India’s engineering exports for April-September 2024 as compared to April-September 2023.

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Reasons for Decline (As per April-Septepber 2024-25):

• Iron and Steel and Products of Iron and Steel: - Insights: 

a)During April-September 2024-25, India’s exports of Iron and Steel deteriorated by 26% vis-à-vis same period last fiscal, while Products of Iron and Steel deteriorated by 2% during the same period.

b)The ferrous sector continued to record decline in exports mainly due to slackened domestic and global demand pressuring down prices. Plus, China's aggressive export policy is also likely to sustain its negative impact on steel mills across the globe, including India. It is essential to recognize that during the initial five months of FY 2024-25 (April-August), our crude steel production increased by 4.44%, while finished steel production rose by 5.30% compared to the same period last year. Notably, steel consumption has surged by 13.78%. This considerable disparity between production and consumption underscores the necessity for imports to meet the burgeoning demand.

c)In the first five months of FY 2024-25 (April-August), steel exports saw a sharp drop of nearly 40% compared to the same period last year. In contrast, imports rose significantly by over 24%. As a result, net exports shifted from a surplus last year to a noticeable deficit this year, with imports now outpacing exports by a wider margin. This reflects a reversal in the trade balance for steel, with higher import levels and lower export activity.

d)Chinese steel prices have continued to down-trend in September. Even, Indian steel prices are grovelling at near-four-year lows. Flat steel prices, especially of hot rolled coils (HRCs) remained in a bear grip amid lacklustre demand despite the fact that the festive season is round the corner.

e)Top Markets affected: India’s exports to USA and EU markets are getting affected due to several factors. List of various NTMs, including the Carbon Border Adjustment Mechanism (CBAM) and Deforestation-free Regulation (EUDR), impact Indian exports. The economic slowdown in key markets like the USA and EU has reduced demand for imported goods, including those from India.

• Non- Ferrous Sector (Copper, Aluminium, Zinc) 

• Copper: (decline of around 11%) 

a)In September global copper prices showed volatility – trended downwards in the beginning of September 2024 before gaining on growing anticipation of a rate cut by the US Federal Reserve which was came through on 18 September. 

b)India’s domestic demand has increased driven by demand for clean energy technologies and EV batteries – this is further indicated by India’s growing import of copper concentrate. The Ministry of Mines projects that the demand for copper in India, particularly from the EV sector, will increase by 1.7 million tonnes by 2027. The per capita copper consumption in India is also expected to rise from the current level of 0.6 kg to 1 kg in the coming years. This growing domestic demand is diverting supply away from export markets, further contributing to the decline in exports.

c)Closure of Vedanta's Sterlite copper plant: India's copper production capabilities have been significantly impacted by the closure of Vedanta's Sterlite Copper plant in 2018.

d)According to the International Copper Association, the closure has led to an estimated annual loss of $1 billion in net foreign exchange inflows due to reduced copper exports. Additionally, India has been forced to spend approximately $1.2 billion annually on copper imports to fill the supply gap, further straining the country's trade balance. The loss of this key production facility has reduced India’s ability to compete in the global copper marke

• Aluminium (decline of around 11%) 

a) Restrictive trade policies and geopolitical tensions

Section 232 and U.S. Tariffs: The U.S. Section 232 tariffs have adversely affected aluminium exports to the U.S., one of India's key markets. Between April and July 2024, India’s aluminium exports to the U.S. declined by 5%. These tariffs are part of broader protectionist measures that have hampered the competitiveness of Indian aluminium products in the U.S. market.

U.S. Anti-Dumping Duties on Aluminium Extrusion Products: On May 1, 2024, the U.S. Department of Commerce announced preliminary antidumping duties on aluminium extrusion products from 14 countries, including India. Indian exporters now face a prohibitive dumping duty rate of 39.05% on products classified under HSN 7604 and HSN 7608. This steep duty rate significantly undermines the competitiveness of Indian aluminium exports in the U.S. market. In response, Indian exporters have submitted detailed representations to the U.S. Department of Commerce, highlighting the potential adverse effects on their businesses.

ASEAN Trade Barriers: In the ASEAN region, countries like Malaysia have imposed high Most Favoured Nation (MFN) duties ranging from 25% to 30% on tariff lines between 7604 to 7608, severely limiting exports from India’s downstream aluminium industry, which predominantly comprises MSMEs. Similarly, Indonesia has placed downstream aluminium products under the Sensitive Track, further restricting market access.

Discrimination in Neighbouring Markets: India’s aluminium exports also face discriminatory practices in neighbouring countries such as Bangladesh. In April 2023, Bangladesh reclassified aluminium billets under HS code 76012090 to 76012000, removing them from the South Asian Free Trade Area (SAFTA) agreement and imposing a 5% Basic Customs Duty (BCD) on imports from India. This change has increased the cost of exporting aluminium billets to Bangladesh, affecting trade volumes.

b) Fluctuations in global aluminium prices mainly fuelled by geopolitical uncertainties and shifting trade policies across the world. Underlying demand in Europe remains muted and US economy is expected to face a sharp slowdown

c) Rising domestic demand

Infrastructure Development: The Indian government's focus on infrastructure development has led to a significant increase in domestic demand for aluminium. According to ICRA, domestic aluminium demand is expected to grow by around 9% annually over the next two fiscal years. This rising demand has diverted more aluminium towards domestic consumption, reducing the availability of aluminium for export.

• Zinc (decline of around 11%)

The decline in zinc exports is mainly due to growing domestic demand for zinc. India's zinc consumption is estimated to increase to over 2 million tonnes in the next 10 years from the current 1.1 million tonnes as per International Zinc Association (IZA) mainly driven by sustainable energy sectors

Source : DGCI&S

The table below indicates the exports from top Indian states. It is evident from the table that almost 93.6 % of India’s exports is contributed by the listed 12 states. Within this almost 56 percent of exports is done by Maharashtra, Tamil Nadu and Gujarat together.

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Engineering forms a considerable part of the broader manufacturing sector and the share of engineering production in overall manufacturing output is quite significant. As exports generally come from what is produced within a country, some correlation between manufacturing production growth and engineering export growth should exist. We briefly lookat the trend in manufacturing growth as also engineering export growth to see if they move in tandem. It may be mentioned that manufacturing has 77.63% weightage in India’s industrial production.

Engineering export growth and manufacturing output growth moved in the same direction in as many as nine out of twelve months in each of the fiscal years 2019-20 and 2020-21. During fiscal 2021-22, engineering export growth and manufacturing growth moved in the same direction in seven out of twelve months while in each of fiscal 2022-23 and 2023-24, as many as 10 out of 12 months saw engineering exports and manufacturing output moved in the same direction.

=The first two month of fiscal 2024-25 also saw manufacturing output growth and engineering exports growth moving in the same direction. April 2024 saw engineering exports declined from a growth in Mar 2024 and manufacturing output growth decelerated. The month of May 2024 witnessed just the opposite. Engineering exports bounced back to growth path and manufacturing output growth accelerated. Then June, July and August 2024 however saw both moved in the opposite direction. June and August 2024 saw higher engineering export growth but lower manufacturing growth in comparison to the previous month while July 2024 just witnessed the reverse.

The link between these two may not be established on a monthly basis, but a positive correlation may be seen if medium to long term trend is considered.