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Business News/ Economy / Merchandise exports dive 12% in December

Merchandise exports dive 12% in December

India’s merchandise exports fell by 12% in December, marking the second decline in three months, as demand slowed down in major markets such as the US and the European Union

Current account deficit widened to a nine-year high of 4.4% of GDP in the second quarter, reflecting the impact of slowing global demand on exports.Premium
Current account deficit widened to a nine-year high of 4.4% of GDP in the second quarter, reflecting the impact of slowing global demand on exports.

India’s merchandise exports fell by 12% in December, marking the second decline in three months, as demand slowed down in major markets such as the US and the European Union.

As imports also declined after two years, the trade gap widened only marginally in December from the previous month.

Key sectors, such as engineering, gems and jewellery, cotton yarn, man-made yarn, carpets, and plastic and linoleum, posted a double-digit decline in exports in December as rising interest rates and fear of a global recession hit demand.

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“If you look at the global situation, there is a huge demand reduction from China. There are a lot of headwinds that we are facing; despite that, our export competitiveness has held its head high. Service exports are growing at a healthy rate. Our services exports will be very high, and it will break the previous record. There is a huge improvement. Merchandise exports are facing a lot of headwinds. Protectionism is also there," said commerce secretary Sunil Barthwal.

Government officials also pointed out that last December’s figures were high, and the latest growth figures are affected by the high base.

India’s merchandise exports dropped to $34.48 billion in December, while imports declined by 3.4% to $58.24 billion, resulting in a trade deficit of $23.76 billion, data released by the ministry of commerce and industry showed.

Given the dismal data, the government may announce measures to boost exports in the upcoming Union budget.

The trade deficit, the gap between exports and imports, is slightly higher than $23.37 billion in the previous month and 13% higher than in the year earlier.

In the April-December period, merchandise exports rose 8.8% to $332.76 billion from the previous year. The government aims to achieve exports of around $450-470 billion for the current fiscal 2022-23.

In November, the government lifted the export duty on steel to arrest the decline in outbound shipments, widening the current account deficit.

Ready-made garments exports grew by 1.02% in December, while electronic exports rose by 37%.

On declining exports to Russia, officials said that there are some market access and standards issues with Russia that are impacting trade.

“For instance, for meat exports, they have to do certain inspections. Because of the Russia-Ukraine war, perhaps they are also facing difficulty. There is a good market for electronic items in Russia, and we will be pushing our electronic items to Russia. Russia is facing sanctions... we have been pushing for rupee trade," an official stated.

On the Generalized System of Preferences (GSP) issue with the US, officials said that India has asked the US to reinstate GSP.

“If you look at textile exports, leather exports... our competitors gain an edge over us because of GSP. But (reinstating) GSP is a call that will have to be taken by the US," the official said.

Engineering exports declined by 11.89% in December, while gems and jewellery exports fell by 15.2%.

The non-oil, non-gems and jewellery exports contracted by 9.16% to $29.54 billion and non-petroleum and non-jewellery imports declined by 7% in December to $40.7 billion during the month, reflecting a slowdown in industrial activity.

As weak external demand affects India’s exports and current account balance, the government is expected to address the inverted duty structure across sectors that hinder India’s domestic manufacturing in the upcoming Union budget, among other measures. It is also considering measures such as increasing export credit and insurance cover, encouraging services exports, and marketing and branding support for Indian geographical indicator (GI) products and khadi and coir.

India’s current account deficit widened to a nine-year high of 4.4% of GDP in the second quarter on account of a higher trade deficit, reflecting the impact of slowing global demand on exports. The country recorded a CAD of 3.3% of GDP in the first half of the current fiscal.

The World Trade Organization in October estimated global trade growth to slow to 1% in 2023 from 3.5% in the previous year amid elevated global uncertainties.

A full recovery in exports will depend on demand rebound in key markets, cautioned economists. Imports are expected to moderate in value on the back of easing global commodity prices.

“The decline in exports is to be expected given the monetary tightening by major large markets. The government has accorded high priority to exports as seen in the recent announcement extending RoDTEP to three more sectors with high export potential," said Sanjay Budhia, chairman of CII National Committee on EXIM.

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

Commerce and industry minister Piyush Goyal, speaking at the Hindustan Times leadership summit in November, reaffirmed that despite external headwinds, India’s merchandise exports would still record an annual growth rate of 10-12% over $422 billion achieved last year. This translates to around $470 billion. In the April-October period, India’s merchandise exports stood at $263 billion.

Responding to December trade data, FIEO president A. Sakthivel said that merchandise exports in the negative territory are on expected lines as the challenges continue due to recession-like situation, slowdown and rising inflation in most economies across the globe. The decline in merchandise exports is a reflection of the toughening global trade conditions on account of high inventories, economies entering a recession, high volatility in currencies and geopolitical tensions.

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Published: 16 Jan 2023, 11:08 PM IST
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