Have India’s exports hit a rough patch?

Amber on economy?

The value of goods that India exports dipped marginally by 1.1% to $32.62 billion in September, reflecting the slowing global demand especially in the US — our top export destination – and in Europe.

India’s outbound shipments had hit a monthly record in March 2022 at $42.2 billion. And this is the first contraction in exports since February 2021.

Meanwhile, imports fell below $60 billion for the first time in seven months at $59.35 billion, but were 5.44 per cent higher than a year ago.

The trade deficit, which stood at $26.73 billion for September, was almost 19 per cent higher than a year ago. The Commerce Ministry highlighted that the deficit in September was an improvement over the $28.68 billion reading for August.

But, at the same time, it explained that exports in certain sectors had seen a decline due to the slowdown in some developed economies and the resultant slowdown in demand. It added that exports had also been impacted by some of the measures taken to tackle domestic inflation and food security concerns.

Compared to last year, engineering goods, drugs and pharmaceuticals, chemicals, readymade garments, rice, and cotton yarn and handlooms saw a contraction in September.

Together, these are six of the country’s top ten export products. Exports of cotton yarn and handloom products recorded the sharpest decline, shrinking 41.4 per cent year-on-year to just $767.5 million in September from $1.31 billion. On a worrying note, engineering goods exports, which have been the driver of India’s exports performance of late, declined 17 per cent year-on-year to $7.81 billion from $9.41 billion. But, electronics goods exports came out as a bright spot, jumping 64 per cent to $1.9 billion.

The bright spot – India’s service industry

On the other hand, India’s services exports have shown resilience. They grew 15 per cent to $23.54 billion in August, according to provisional data. In July, services exports increased by 20.2 per cent year-on-year to $23.26 billion.

In December last year, analysts at Crisil said in their report that the Indian government’s goal of achieving $1 trillion in goods exports by fiscal 2028 needed a reality check.

One of the factors they listed for being cautious was the fact that the country’s exports were highly sensitive to global growth shocks. Even before the onset of the Russia-Ukraine war, they had warned that the emerging global environment was set to become more challenging. In September this year, the Export-Import Bank of India also said that exports could be shadowed by softening global commodity prices, a possible slowdown affecting major trade partners, and the inflationary pressures and tight monetary policies around the world.

And the world is bracing for much more challenging days ahead. Economist Nouriel Roubini has said that a global recession will set in by the end of the current calendar year and last through 2023.

Roubini, who correctly predicted the 2008 financial crisis, has said that the US, along with the rest of the world, is about to face an ugly and long recession. World Trade Organization Director-General Ngozi Okonjo-Iweala has also said that the world is “edging into” a global recession.

The WTO is expected to lower its 2022 trade growth projections next month. In April, it had lowered its projection for growth in merchandise trade this year to three per cent from 4.7 per cent previously.

Since external trade accounts for half of India’s GDP, it could face an economic downturn if a global recession does hit. The country will have to brace for lower merchandise and services exports. But, commodity prices are also correcting. Going forward, they are expected to come down significantly. This would cut the import bill and boost consumption, which would push the growth momentum.

What about free trade agreements? India has returned to the FTA negotiating table after a long hiatus. While agreements have been signed with Australia and the UAE, negotiations are at various stages of conclusion with Canada, the UK and the EU.