Trade data released last week showed that India’s exports and imports have contracted for the second straight month in January. This persisting weakness in the country’s trade data points towards slowing economic momentum across both the domestic and global economy. This is a worrying sign. The disaggregated data suggests that the fall since the second half of last year has been driven by both price and volume effects. Though, as a consequence, the merchandise trade deficit has narrowed in January, falling to its lowest level over the past year. While the sharp rise in the current account deficit in the second quarter of this year (4.4 per cent of GDP) had raised concerns over its financing, the trends in goods and services exports and imports in the period thereafter suggest that the deficit is likely to have peaked.
Data released by the Ministry of Commerce and Industry showed that India’s exports contracted by 6.6 per cent in January. As per a report by investment house Nomura, excluding oil, gold, gems and jewellery, core-exports fell by 7.5 per cent. Worryingly, core-exports have fallen in four of the last five months as per the report, signalling the sharp slowdown in global demand as central banks across the world have tightened monetary policy to tackle inflation. Within core-exports, while exports of electronic goods were healthy in January, most other segments, including the labour intensive sectors such as textiles, witnessed a decline. In fact, a majority of the 30 major export segments witnessed a contraction in January. On the other side, the latest data also shows that overall imports contracted by 3.6 per cent in January. While the 70.8 per cent fall in gold imports is indeed welcome news — high gold imports have contributed to the widening of the deficit in the past — the disaggregated data shows that imports, excluding oil, gold and jewellery, fell in January. This indicates a softening of domestic demand.
In its latest world economic outlook, the International Monetary Fund has pegged global growth to slow down to 2.9 per cent in 2023, from 3.4 per cent in 2022. The Fund has also projected growth in world trade volumes (in goods and services) at 2.4 per cent this year, down from 5.4 per cent the year before. Slowing global economy and world trade suggest that the fall in India’s exports can intensify further. This will imply that the boost from exports to the broader Indian economy that was observed over the past financial year is unlikely to materialise now. With the other drivers of growth constrained in their ability to stimulate growth, at this critical juncture, the policy apparatus should be guided by the objective of facilitating exports and deepening India’s trade relations.
