Trade data released by the Ministry of Commerce and Industry a few days ago points towards a continuing weakness in India’s exports. Merchandise exports fell to a nine month low of $32.25 billion in July, a decline of almost 16 per cent. Alongside, goods imports also fell by 17 per cent to $52.9 billion. In the first four months of the financial year (April-July), exports and imports have now contracted by 14.5 per cent and 13.8 per cent respectively. While part of the decline can be traced towards lower commodity prices, both non-oil exports and imports have fallen indicating weak global and domestic demand. These are worrying signs.
The disaggregated data shows that 19 of the 30 major export items have declined during April-July. These also include labour intensive sectors such as gems and jewellery, leather products, textiles and others. However, electronic exports continue to grow at a robust pace, rising by 37.6 per cent in the financial year so far. As per an analysis by Crisil, the decline in India’s exports has been more pronounced in the Asia Pacific region. In the first two months of the financial year, exports to APAC declined by 21.8 per cent, followed by the US (12.9 per cent), Africa (8.6 per cent) and Europe (6 per cent). As per this analysis, the share of APAC in India’s goods exports has been on a decline since the beginning of the pandemic. While in 2019, the region accounted for 33 per cent of India’s merchandise exports, by 2022-23, its share in the country’s export basket had declined to 26.5 per cent, while the combined share of the US and the EU rose to 34 per cent.
In the near term, slowing global demand and trade will continue to weigh down exports. As per the International Monetary Fund’s July update of its World Economic Outlook, the world economy is likely to grow at 3 per cent this year, down from 3.5 per cent the year before. Alongside, world trade volume growth (goods and services) is expected to slow down from 5.2 per cent last year to 2 per cent this year. In fact, growth this year is now projected to be 0.4 percentage points lower than the IMF’s earlier forecast. Considering its broader economic implications such as on job creation and the current account, policy must focus on boosting merchandise exports.