Exports fall first time in 19 months, Centre warns of tough days

India’s merchandise exports plunged 16.5% in October, the first such decline in 19 months, as demand fell across major markets, including the US and the European Union, and festival holidays disrupted domestic production.

While imports grew the slowest in 21 months in October, the trade deficit widened to the sharpest since June 2020 due to the steep contraction in exports from a year earlier.

Exports from key sectors, including engineering, readymade garments, gems and jewellery, and plastics and linoleum, fell by over 20% in October, while cotton yarn and jute products exports fell over 40%, as demand slowed in India’s major markets amid high inflation and fears of a recession. Outbound shipments for iron ore fell by 90% in value terms in October, led by a steep decline in international prices.

Mint was the first to report on Monday that India’s exports in October saw a double-digit decline. Exports declined to a 20-month low in October to touch $29.78 billion, and imports slowed to 5.38% to an eight-month low of $56.69 billion, data released by the ministry of commerce and industry showed on Tuesday, widening the trade deficit to $29.78 billion.

The trade deficit, which is the gap between exports and imports, is 66% higher than $17.87 billion in October last year. Besides slowing demand, factors including export restrictions by India on segments including wheat, steel, iron and petroleum products have also contributed to the slowdown in exports.

At a press briefing on Tuesday, commerce secretary Sunil Barthwal cautioned that the dismal external environment could mean “tough times” for the economy, but the Centre was looking at ways to diversify exports to Latin America and West Asia, which appear as bright spots.“If you look at the GDP forecast by the International Monetary Fund, for most of the developed countries, it has been revised lower. In most of the developed world, tightening monetary policy puts less money in the hands of the people and therefore, consumption slows down. So, there are going to be tough times for us, and there would be a lot of headwinds for us,” said Barthwal.

Also, the World Trade Organization last month estimated global trade growth to slow to 1% in 2023 from 3.5% in 2022 amid elevated global uncertainties. “We have analyzed it, and we have looked at the bright spots. If you look at North America, West Asia and Latin America, there are good growth prospects, and the ministry will be looking at those opportunities,” he added.

Barthwal attributed the steep decline in exports in October to the festival holidays.

“What Diwali and Dusshera do is that you are not able to produce because workers are not there. Therefore, there is an impact on production. You can only export what you produce. We looked at the data, and there was an around $4 billion difference,” he said.

While exports in November may perform better than in October, a full recovery will depend on demand rebound in key markets, economists said. Imports are expected to moderate in value on the back of easing global commodity prices.

“Both merchandise exports and imports moderated on a sequential basis between September and October, which we believe was driven by a larger number of holidays related to the festive season... As of now, we expect some rebound in November relative to October, although it may not be as strong as the trend seen between November and December of 2021, given the prevailing global demand concerns,” Nayar added.

In fact, the external headwinds could impact India’s overall economic growth going forward. “The pinch from slowing external demand is going to get more painful for the Indian economy in the months to come. We could see a significant portion of India’s GDP shaved by the widening of the trade deficit in the subsequent quarters,” said Rajani Sinha, chief economist, CareEdge.

The decline in exports could also be attributed to supply-side factors.

“Continued bottlenecks in logistics and supply chain, shortages of semiconductors and some metal commodities, and elevated energy prices keep pressure on the production cycle, on the supply side. This could be seen in the negative export trends witnessed by engineering goods, plastics, chemicals and pharmaceuticals, among others,” said Prahalathan Iyer, chief general manager for research and analysis at India Exim Bank. He added that inflationary pressures due to energy prices had reduced the purchasing power of households on the demand side. “We need to wait and watch how soon the economic recovery happens in the US and Europe,” added Iyer.