Opinion Express View: Trade data points to slowing global and domestic demand

Trade data released by the Ministry of Commerce and Industry on Thursday provides an indication of the headwinds to growth. India’s merchandise exports and imports have now declined in three of the last four months as tightening financial conditions across the world have weighed down global and domestic demand. As per the latest data, merchandise exports contracted by almost 14 per cent in March as global demand continued to weaken, while imports fell by around 8 per cent pointing towards slowing domestic demand. Considering the slowdown in the global economy this year — in its latest world economic outlook, the International Monetary Fund has pegged global growth at 2.8 per cent in 2023, down from 3.4 per cent in 2022 — exports are likely to come under further pressure in the months ahead. While the full extent of the downturn will only be evident in the months ahead, considering the strong linkages to the broader economy, a deep contraction in merchandise exports will weigh down the manufacturing sector in India, acting as a drag on overall domestic economic activity.

At the aggregate level, merchandise exports rose to $447 billion in 2022-23, up 6 per cent from $422 billion in 2022-23. But strip away non-oil exports, and exports in the full year were actually lower than the year before. While electronic goods have registered a significant expansion, as have rice exports, major segments, including labour intensive categories, such as gems and jewellery, cotton and man-made yarn, textiles as well as engineering goods, have seen lacklustre performance. According to a report by Nomura, excluding oil and gems and jewellery, core exports have declined for four straight months, with major markets such as the US and the EU witnessing a sharp slowdown. Alongside the decline in exports, the fall in imports is equally disconcerting. Again excluding oil and gems and jewellery, imports in March were lower than in the same period the year before. Weakness is being observed across both investment and consumer goods sections which points to a slackening of domestic demand.

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The latest data also shows that the merchandise trade deficit widened to $267 billion in 2022-23, from $191 billion in 2021-22. Considering that both exports and imports are likely to remain weak this year, to what extent domestic demand fares better than external demand will determine the country’s overall current account deficit. While some analysts expect the deficit to be around levels seen last year, others are more pessimistic, and, even as the services trade surplus has been strong, are penciling in a higher deficit level.