What lies next for India’s shaky exports story

The net surplus on the export of services is expected to partly offset the higher trade deficit. Photo: Bloomberg
The net surplus on the export of services is expected to partly offset the higher trade deficit. Photo: Bloomberg


  • India’s merchandise export growth in September turned negative for the first time since February 2021. Mint explains what to expect next:

Why are engineering exports declining?

Engineering goods, whichaccount for about a quarter of India’s total shipments, saw exports decline by a steep 17% in September from a year ago. Exporters attributed the fall to demand slowdown and accumulation of inventory with the buyers due to the easing of shipping lines. Earlier, buyers in the US over-ordered because of uncertainty in China and the non-availability of containers. Now, the supply chain is flush with products. Exporters expect the moderation to last at least another two-three months. By then, the extra inventory could be exhausted.

What are apparel exports looking like?

Apparel or ready-made garments exports declined by a sharp 22% in September, with several large buyers in the EU deferring purchases. The industry expects exports for textiles and ready-made garments to decline by 10-15% in the last quarter of the current fiscal year. With recessionary fears and energy crises looming large in the EU market, exporters expect demand in the EU to worsen more than that in the US. Europe could face a deeper energy crisis as it prepares for winter with gas prices having reached record highs, and with supplies running low.

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Why are exporters warning of more stress ahead?

With the escalation in Ukraine, economists say the energy crisis in advanced eco-nomies could get worse. The Federation of Indian Export Organisations has warned that the “coming few months would be quite challenging" unless the geopolitical situation brightens. Moreover, a global disruption in gas supply has forced India to hike natural gas prices by a steep 40%.

What is the prognosis for service exports?

Service exports have been growing at a robust pace. RBI governor Shaktikanta Das recently said the net surplus on the export of services is expected to partly offset the higher trade deficit. The commerce ministry expects the services sector to achieve exports worth $350 billion in FY23, compared to $254 billion in FY22. Services export promotion council chairman Sunil H. Talati has asked the government to allow GST refund to tourists for local purcha-ses and relaxation of visa norms for medical tourism to boost exports.

What have Indian exporters suggested?

An association of micro, small and medium enterprises has sought a grievance redressal mechanism for small exporters who get little government help when shipments are stuck at foreign ports. Amid rising borrowing costs, exporters have asked RBI to consider opening export credit refinance facilities and encourage banks to lend to the export sector. FIEO has asked the government to consider continuing with the Integrated Goods and Services Tax exemption on freight on exports, which lapsed on 30 September.

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