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| Photo Credit: K.R. Deepak
India’s foreign trade hit a fresh trough in August, with goods exports shrinking for the seventh successive month, services exports estimated to have dropped for the first time in well over a year, and the goods trade deficit hitting a 10-month high.
The extent of decline in outbound shipments eased to 6.86% in August from double-digit contractions in recent months, to hit a three-month high worth $34.5 billion. Services exports, after growing at a sharp 26.7% rate in 2022-23 and holding up so far amid slowing world demand, were reckoned to have shrunk 0.4% in August to $26.39 billion, stoking fears about a widening current account deficit in this quarter.
The merchandise import bill for August dropped 5.23% year-on-year to $58.64 billion, but was 10.85% higher than July’s $52.9 billion import tally, lifting the goods trade deficit for August to $24.16 billion, just 2.8% below August 2022 numbers and almost 17% over July’s $20.67 billion gap.
Aditi Nayar, chief economist and head of research at ICRA, said that the sharp sequential uptick in imports in August had widened the trade deficit to a ten-month high. “With the monthly merchandise trade deficit averaging much higher during July-August vis-à-vis April-June 2023, India’s current account deficit is likely to widen in this quarter (Q2) from the $10-12 billion expected in Q1,” she cautioned.
Oil prices hit exports
Nearly half of the decline in exports this year has been driven by the decline in petroleum prices, top officials said, noting that though export volumes of petroleum products were up 6% during April to July, prices were 27% lower than a year ago.
“In fact, 13 commodities that accounted for about 23% of our exports in this period, have seen a rise in volumes despite a decline in the value of shipments, indicating there is strong demand for our products,” an official said.
‘Optimistic’
Commerce Secretary Sunil Barthwal said that he was more optimistic now about export prospects than he was last month, with prices of commodities like petroleum firming up, and green shoots becoming visible in the industry’s export order books.
While demand from the European Union — where another interest rate hike was announced on Thursday — is likely to remain insipid, Mr. Barthwal pointed to the World Trade Organisation’s (WTO’s) projections of 2.4% growth in global trade in 2024 from the 1.7% estimated in 2023. “I hope exports will grow consistently from here… Global trade is looking up, especially in goods trade and items like automotives,” he said.
“Merchandise trade volume turned up in the second quarter after two quarters of decline, but still remains slightly below the trend,” another official said, referring to the WTO goods trade barometer’s current reading of 99.1, which is close to the baseline value of 100.
“For the first time in this financial year, the estimated services exports also recorded a dip in August, alongside merchandise exports, where double-digit declines in petroleum products and gems and jewellery exports continued to weigh down the numbers,” said David Sinate, chief general manager of the research and analysis group at India Exim Bank.
‘Easy, cheap credit needed’
The Federation of Indian Exporters’ Organisations (FIEO) said that demand was subdued not just in major economies like the EU, U.S., and China, but also in markets such as Australia and Asia. FIEO president A. Sakthivel said that things were expected to improve in the next few months, with more fresh orders coming for the Christmas and New Year season.
“The need of the hour is to provide easy and cheaper credit to small enterprises and meet the long-pending demand for marketing support to promote Indian products as well as exempt GST levies on freight for exports,” he pleaded, adding that exporters also needed interest equalisation support and an extension of the emergency credit line guarantee scheme to cope with these tough times.