After growing at a healthy 22 per cent in the first quarter of the ongoing financial year, India’s merchandise export growth has dipped sharply in the months thereafter. This is reflective of slowing global demand and price corrections. Data from the ministry of commerce and industry shows that export growth slowed down to 2.1 per cent in July, contracting by 1.2 per cent in August to a nine-month low of $33 billion.
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Growth So For:
August was the first time that exports have contracted in 18 months. In comparison, merchandise imports have continued to grow at a robust pace, rising by around 37 per cent in August. While imports have been driven by fossil fuels (petroleum and coal), non-energy imports (such as electronics and machinery) have also surged. In fact, over this five-month period, non-oil imports have grown by 32 per cent, indicative of strong domestic demand. As a consequence of weak exports and robust import growth, the merchandise trade deficit (April-August) has more than doubled over the same period last year.
factors Behind It:
The disaggregated data shows that, excluding petroleum, the decline in India’s exports in August was sharper at 2.2 per cent. The fall was driven by engineering goods, cotton yarn, and gems and jewellery, among others. In its July update of the world economic outlook, the International Monetary Fund projected global growth to slow down to 3.2 per cent in 2022, from 6.1 per cent in 2021. The IMF had earlier forecasted growth at 3.6 per cent, but lowered its assessment as several shocks ranging from high inflation and tightening of global financial conditions, a slowdown in China, and negative spillovers from the war in Ukraine, are impacting economic activity. Growth for the next year has been pegged even lower at 2.9 per cent. Alongside, the Fund has also lowered its projection of world trade volume in goods and services to 4.1 per cent in 2022 (it had earlier assessed growth at 5 per cent), down from 10.1 per cent last year. It expects world trade growth to slow down further to 3.2 per cent in 2023.
Services exports have continued to maintain their healthy growth, even as imports have seen a decline. As per some analysts, the services surplus is likely to exceed levels seen last year as demand remains firm, and the currency remains weak. Notwithstanding that, the sharp deterioration in the goods trade deficit will imply a worsening of the current account deficit. As per some assessments, the deficit will rise sharply in the second quarter. In times of globally tightening financial conditions, while financing this will be challenging, the recent turnaround in foreign portfolio flows provides some comfort.
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