Saudi Arabia’s love for fancy homes is expanding the lucrative Middle Eastern market for Indian exporters, boosting a recovery in overseas shipments.

Export volumes to the Arab nation rose 16 percent last year -- outstripping other markets -- led by an 80 percent surge in ceramics and tiles, according to Maersk Line, the South Asian unit of the world’s largest container shipping company. Overall export growth quickened to 11 percent from 2 percent the previous year, and the trend seems to have continued with government data for February showing the biggest jump in value since 2011.

"Increase in construction activities and redecoration of homes due to an improvement in the Saudi Arabian economy were the key reasons for this demand," said Franck Dedenis, managing director for the India, Sri Lanka and Bangladesh cluster at Maersk. Indian shipments were more competitive because the Chinese raised prices to upgrade their factories, while Spain shifted its sourcing base to India, according to the report.

Diversification offers India some protection from any trade war between the U.S. and China, its biggest partners. Prime Minister Narendra Modi’s government can’t afford to be shy: exports need to grow about 15 percent each year to ensure gross domestic product expands 8 percent -- the level needed to create enough jobs -- according to his top economic adviser.

Merchandise exports rose 17.5 percent in February from a year earlier to $24.5 billion, after a record slump. This jump is partly flattered by the previous year’s data but also by a 47 percent growth in engineering goods, such as iron and steel. Container trade volumes, which account for about 55 percent of India’s merchandise trade, grew 10 percent in 2016, twice as fast as the year earlier.

"The surge in export growth is a combination of both price and quantity effect," said Soumya Kanti Ghosh, an economist at State Bank of India. This indicates that the bellwethers of global activity are improving, he said.

Risks to the outlook include rising handling rates at ports and the relative strength of the rupee -- among the best performers in Asia this year -- that could make Indian exports less competitive. Port operators will continue to "experience healthy growth in cargo in the near term," though this will be lower than recent years as lower coal imports offset higher iron ore exports, according to a March 28 report from ICRA Ltd.

India can boost exports by up to $5.5 billion by improving the efficiency of the supply chain and prioritizing digitization, according to Maersk. While exports to the U.S. and UK remained consistent, Kenya was India’s second-fastest-growing destination in 2016 due to demand for garments, appliances, kitchenware and automobiles.

"Big traditional markets such as Europe and North America had some troubles since 2009," Dedenis said by phone. "Indian exporters have been trained to look for new markets ever since and that has been realized very much in 2016 with three areas; Africa, Latin America and the Middle East."

Source:
courtesy of BLOOMBERG

by Dhwani Pandya

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