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Testing times: On shrinking of India’s goods exports

August's Foreign Trade Numbers Raise Concerns but Offer Hope

India's goods exports faced their seventh consecutive decline in August, marking the ninth drop in 11 months. This downward trend contrasts with a surge in imports, reaching their highest level since March this year. Inbound shipments, totaling $58.6 billion, remained 5.2% below last August's levels. However, exports experienced a more substantial decline, dropping by 6.9%, resulting in a trade deficit of $24.2 billion, the widest since October 2022. Year-to-date, goods exports have fallen by 11.9%, while imports have decreased by 12.1%. Though service exports for last month are yet to be confirmed, Commerce Ministry projections indicate that even this resilient sector is beginning to feel the impact of global economic turbulence.

Currently, a minor 0.4% drop is expected in services exports for August. Moreover, with intangible imports likely to decline at a faster rate, this is not expected to worsen the trade balance significantly. However, the shrinking services exports could limit their ability to offset the rising goods trade deficits witnessed last year, potentially leading to wider current account deficits in the coming quarters.

The global surge in commodity prices, up by approximately 12% since June and reaching a 15-month peak this month, is expected to further pressure the goods trade deficit. This is particularly concerning for India as imports of oil and gems and jewelry have fallen less compared to their exports in the fiscal year 2023-24. During the first four months of this fiscal year, nearly half of the decline in outgoing shipments can be attributed to petroleum, despite a 6% increase in volume due to a 27% price decrease. This situation may change if global oil prices remain elevated, as they recently crossed $90 per barrel for the first time since November 2022.

While export volumes of 13 major items increased between April and July, their value decreased due to lower prices. This suggests continued demand for Indian goods, offering a glimmer of hope amid the current challenges. The government believes that rising commodity prices could positively impact trade balances. However, this situation also poses a potential challenge, especially as India's strategic decision to import more Russian oil becomes less lucrative. Additionally, persistent inflation may dampen demand, especially in crucial markets like the European Union, which recently raised interest rates to a record high. Although inflation has increased in the United States, it has not yet reached levels that could significantly impact festive demand and potentially boost order books in the coming months.

A positive development is the uptick in engineering goods, accounting for a quarter of India's exports, which saw growth in August after eight months of decline. Half of the 14 key export segments showed growth, marking the best performance in nine months. India must continue to nurture these promising signs and provide support to exporters.

Source The Hindu