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Goods trade data hints at recovery, albeit  at soft  pace

India’s goods exports in September were up 6% from last year to $27.6 billion. Growth in exports was seen after six months of contraction. On the other hand, goods imports continued to contract and were down 19.6% to $30.3 billion. What’s happening here? Mint explores.

India’s goods exports in September were up 6% from last year to $27.6 billion. Growth in exports was seen after six months of contraction. On the other hand, goods imports continued to contract and were down 19.6% to $30.3 billion. What’s happening here? Mint explores.

Why are exports falling since March?

There are two reasons behind the 21.5% fall in exports to $125 billion during the first half of this fiscal year. One is naturally the rapid spread of covid-19 across countries, which are India’s major trading partners. This led to Indian exports’ demand imploding in these countries. On top of this, the nationwide lockdown to prevent the spread of the pandemic added to the woes of exporting firms. Even where there was demand, production had to be stopped because of the lockdown, leading to lower exports. Things have been gradually improving since May with lower export contraction.

What’s behind plunge in imports since Mar?

During the first half of this fiscal year, imports contracted by 40.1% to $148.5 billion. The economic contraction following the covid-19 outbreak led to a demand crash for imported products. For instance, oil imports contracted by 51.1% to $31.8 billion. This has been both due to a fall in consumption, as well as a major plunge in oil price. The average price of the Indian basket of crude oil in the first six months of FY21 was $36.7 per barrel, against $64.7 per barrel in the year-ago period. The consumption of petroleum products has been 18.7% lower this financial year, as people refrained from going out post-covid.

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Silver lining

Why have exports turned around, but not imports?

India’s major exporting countries are recovering from covid-19 faster than India. This has led to an increase in demand for Indian products in these countries, aiding exports growth. There was also some lower base effect at play as exports in September 2019 at $26 billion, were lower than the exports of $27.9 billion in September 2018.

Is everything well with outbound shipments?

Labour-intensive export items, such as leather, gems and jewellery, textiles, contracted for the eleventh consecutive month, notes Anagha Deodhar of ICICI Securities. While these sectors create jobs for India’s masses, they contracted by 10% in September. These sectors have generally not done well in the last few years. This explains how countries, such as Bangladesh and Vietnam, and not India, are taking several global exports markets that Beijing has been gradually vacating, with labour costs going up in China.

Is there any good news on the trade front?

If we look at non-oil, non-gold, non-silver imports, a very good indicator of consumer demand in any country, things have been improving since April, when the contraction was 53.7%. The contraction of these imports was

at 12.2% in September, and 29% in August. This is a clear indicator of the fact that as the economy opened up, consumer demand is coming back, though at a very slow pace.

Vivek Kaul is the author of Bad Money

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