Early estimates of India’s external trade performance in May are a harbinger of even tougher times ahead. 10.3% decline in merchandise exports Outbound shipments contracted for the fourth consecutive month and for the sixth time in eight months. May’s export value of $35 billion was only 0.8% higher than April’s figure, which was a six-month low. Barring electronics exports, which grew healthy year-on-year as well as sequentially, exporters across sectors had a tough month. Engineering goods, which make up a quarter of India’s merchandise export basket, contracted for the 11th month in a row, while the employment-intensive textile sector shrank for the seventh month in a row. The 30% decline in petroleum exports (the seventh contraction in eight months) may be largely due to a fall in global prices which is affecting export values of other commodities as well, if not volumes. After a growth of 6.7% in 2022-23, merchandise exports are now down 11.4% in the first two months of this year. The current estimate for May’s services exports at $25.3 billion is also grim.
A 26.7% jump in services exports last year helped narrow the goods trade and current account deficits, fueled by a rise in global prices of commodities such as oil and fertilisers, whose imports are ineligible for India. The reversal in that pace of growth began this March and reached a tipping point with global service receipts growing just 0.7% in May. The global recession that apparently affected consumer demand for products now appears to be affecting the appetite for services as well. With IT companies reducing guidance and selling new hires, some impact on domestic demand is visible and may pick up in the coming months. Core imports (excluding oil and gems and jewelery) have contracted 5.5% so far in 2023-24. Total merchandise imports declined by more than 10% during April and May after rising 16.5% last year to $714 billion. May’s import bill of $57.1 billion was just 6.6% below 2022 levels and nearly 14% higher than April’s figure, which was the lowest in 15 months. This widened the merchandise trade deficit to a five-month high of $22.1 billion. Last month, the commerce ministry expressed hope that demand from major markets could resume from August or September. Now, it believes that there could be a correction in the trend from July or August. It has again cited the World Trade Organisation’s upgrade of its global trade growth forecast for 2023 from 1% to 1.7%. Even if it bears fruit, it is a far cry from the average 2.6% growth over the past 12 years and the relief for India may be limited. , A ‘business as usual’ approach will not suffice to keep this major growth engine of the economy alive.