Opinion Why India’s exports and imports have been contracting

Trade data released by the Ministry of Commerce and Industry last week showed that India’s merchandise exports and imports continued to contract in February, pointing towards slowing momentum across both the global and domestic economies. Especially worrying is the deepening of the pace of contraction in both exports and imports. Merchandise exports fell by 8.8 per cent in February, after declining by 6.6 per cent in January and 3.1 per cent in December, while imports declined by 8.2 per cent in February, after falling by 3.6 per cent in January. On the flip side, a consequence of this deepening contraction is that the country’s merchandise trade deficit narrowed further to $17.4 billion in February.

The disaggregated data shows that core-exports, which exclude exports of oil, gold and gems and jewellery, have continued to contract. In fact, 16 of the 30 main export segments actually fell in February, with even labour intensive segments such as leather and textiles witnessing deep contraction. As per a report by Nomura, as of January, the sharpest declines have been observed in the country’s exports to the US, China, Japan and the rest of Asia. While higher export growth in the first half of the financial year has pushed overall growth for the year so far (April-February) to 7.55 per cent, non-oil non-gems and jewellery exports are almost at the same level as last year. This is a worrying sign. On the imports side too, a similar scenario exists. Core imports, which exclude oil, gold and gems and jewellery, have continued to contract. The data points towards a softening of imports of consumer and investment goods, indicative of weakening domestic demand.

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The outlook for exports remains subdued. According to a report by Crisil, India’s merchandise export growth is likely to moderate to 2-4 per cent in the coming fiscal year as two of the country’s biggest destinations for exports — the US and EU — are expected to slow down sharply. As per the International Monetary Fund’s latest World Economic Outlook, the US economic growth is expected to slow down from 2 per cent in 2022 to 1.4 per cent in 2023, while the Euro region is expected to moderate from 3.5 per cent to 0.7 per cent over the same period. This assessment implies that exports are unlikely to provide a fillip to growth. The overall economic momentum will be further weighed down as the full impact of the RBI’s tighter monetary policy will be felt across the country.