India’s merchandise exports fell Third time in five months during February. Shipments of $33.8 billion marked an 8.8% decline from a year ago. In the recent period of generally high export growth, the only sharp decline was recorded in October 2022. A sharp 29% drop in oil exports, a 12% drop in chemical shipments and a 10% contraction in engineering goods outflows – accounting for nearly half of India’s merchandise exports – prompted February’s decline. But the impact of faltering global demand extended further, with 13 of India’s top 30 export items down further. February exports are still 7.3% higher than October’s number, but the immediate outlook is a return to the gloom that pervaded the final quarter of 2022 – with large parts of the world sliding into recession. Resilient economic data from major markets over the past few months had instilled a belief that the world economy could avoid the worst of 2023. But the Ides of March dashed those hopes – for now, at least.
Retail sales in the US, India’s biggest export destination, rose 3% in January as a positive surprise, but declined in February. The failure of two US banks and the disclosure of vulnerabilities by European banker Credit Suisse, amid the US Federal Reserve’s race to rein in inflation, suggest that momentum may not be changing anytime soon. On Wednesday, Brent crude prices fell nearly 5% – with recession risks clearly re-emerging after an unexpectedly benign start to the year. With manufacturing already shrinking for two quarters, a sustained round of sliding shipments could mean factory job losses and dent consumption. As it is, February’s 8.2% drop in imports – the sharpest in a three-month streak of contraction and the lowest import bill ($51.3 billion) in nearly a year – does not reflect well on domestic demand that expected to decouple from the economy. Global shocks. Some of this may be due to prices rather than volume factors (oil and edible oil prices skyrocketed after the Ukraine war). To contain the deficit amid weak exports, the government is considering curbing unnecessary imports. But this is tricky territory where factors like quality, pricing and supply chain linkages also matter, and wrong moves can curtail consumer (and investor) choice. The deficit in January and February has already narrowed sharply from a record $29.2 billion level last September, with better use of policy bandwidth allowing exporters to tap new markets and respond more quickly to rapidly changing dynamics in key markets. Can be done to do. The long-pending overhaul of the Foreign Trade Policy for 2015-20 should not be delayed further at any cost.