Exports jump 9% YoY amid demand revival in key markets; trade deficit at 7-month high

“The merchandise trade deficit widened to a seven-month high driven by a jump in the net oil imports. On sequential terms, 71 per cent of the enlargement in the merchandise trade deficit in May 2024 relative to April 2024 was driven by the net oil balance, with a sharp rise in volumes amidst some cooling in prices,” Aditi Nayar, Chief Economist and Head of Research and Outreach, ICRA said.

Services exports rose to $30.16 billion in May from $26.99 billion in the corresponding month of last year, logging a healthy 11 per cent increase. Services imports rose 8.81 per cent year-on-year to $17.28 billion. In May 2023, services imports were at $15.88 billion.

“Overall exports have grown in double digits and goods exports have also registered a healthy 9 per cent growth which is a reflection of the fact that inflation in major advanced economies has gone down. This augurs well of our exports as purchasing power in these markets improve with inflationary pressure coming down,” Commerce Secretary Sunil Barthwal told reporters.

Exports to the US rose by over 13 per cent from year-ago levels to $7.42 billion in May. Outbound shipments to the United Arab Emirates (UAE) jumped nearly 19 per cent year-on-year to $3.06 billion. Shipments to the Netherlands, an export hub in Europe, jumped 44 per cent over May 2023 to $2.19 billion.

This comes after the US economy is recovering at a faster-than-expected pace, which resulted in the World Bank upgrading its outlook for the global economic growth to 2.6 per cent this year from its earlier projection of 2.4 per cent. The World Bank earlier this month revised its outlook for the US economy to 2.5 per cent growth in 2024 compared to 1.6 per cent it predicted earlier.

However, India’s exports to Australia in May slipped by 3.52 per cent to $519 million compared to $538 million. The India-Australia free trade agreement (FTA) came into force in December 2022. Moreover, India’s imports from the UAE, another nation that India has an FTA with, jumped by a sharp 50 per cent to $5.2 billion.

In May, India’s exports continued to surge in the electronic and engineering exports category. The month also marked a recovery for textile exports. While electronic goods exports jumped 22 per cent year-on-year, engineering exports rose 7.39 per cent. Exports of the labour-intensive readymade garments (RMG) of all textiles were 9.84 per cent higher in May.

“Goods exports with a growth of 9 per cent compared to May 2023 is not only a good sign but also goes to show efforts and hard work, which the exporters are putting together. We further expect exports to show better growth numbers with improved demand coming in from the European Union, UK (United Kingdom), West Asia, and the US, which has given a boost to the order bookings by over 10 per cent and has come as a sign of recovery for the labour-intensive sectors of exports,” Federation of Indian Export Organisations President Ashwani Kumar said.

Engineering Export Promotion Council of India (EEPC) Chairman Arun Kumar Garodia said that the upturn in shipments reflects improvement in demand in India’s key markets. According to him, the global economic outlook is expected to improve in the ongoing fiscal, giving Indian exporters enough reason to remain optimistic.

“While both near- and medium-term outlooks remain positive, exporters are facing the challenge of high ocean freight rates on some key routes. This could affect exports. Also, it has been seen that China is shipping large volumes to the US in the wake of additional import duties that could be applicable to Chinese goods from August this year,” Garodia added.