After reaching a record $775 billion in 2022-23, India’s exports are off to a rough start this year. Outbound shipments of goods, which crossed $450 billion last year, declined by 15.1% during the April to June 2023 quarter. Provisional Export tally for JuneAt just under $33 billion, it was the lowest figure in eight months and represents a 22% year-on-year decline, the level of contraction last seen amid the early months of the COVID-19 lockdown. The import bill also declined in Q1, although at a slower pace than exports. This 12.7% decline is largely due to lower commodity prices this year compared to the same quarter last year, when the import bill soared 44.5% following the Russia-Ukraine conflict. Excluding gold and oil imports, the value of shipments coming into the country is down 10.5% in the first quarter. Sequentially, the decline in non-oil, non-gold imports increased from 2% in May to 16.7% in June, indicating that domestic demand is also slowing down. While this implies that the merchandise trade deficit may not widen as much as last year, it does not bode well for domestic growth impulses which are India’s main shield against the looming global slowdown.
Services exports are still growing but at a more disappointing pace. IT majors, which drive most of these intangible exports, are uncertain and certainly downbeat about their earnings guidance for this year, indicating the situation could worsen. Weak global demand could not only impact trade flows, but also hurt foreign direct investment, even as tightening monetary policies could increase financial market volatility. As the finance ministry noted recently, if these trends deepen, expectations of a 6.5% growth for the year could falter. But retail sales in the UK have improved in June, albeit only partially. US Treasury Secretary Janet Yellen has expressed confidence that a recession in the world’s largest economy can finally be avoided. Inflation numbers in Europe and the US have eased, raising expectations for interest rates to stabilize rather than further tighten demand and activity. While driving on hills, one has to give priority to the movement of vehicles going uphill, even if this means reversing the vehicle while descending to a point of safe passage. Within the overall declining trend of exports, some bright spots such as increasing shipments of electronic goods should flourish, while trade restrictions or barriers affecting other products should be reviewed. Indian policymakers should redouble efforts to improve competitiveness against rivals such as Vietnam, and keep a close eye on divergent trends in different markets to help exporters capture incremental, even if partial, global demand.