India’s merchandise exports fell 10.3% to $34.98 billion in May, while imports contracted at a slower 6.6% rate to $57.1 billion, lifting the trade deficit to a five-month high of $22.1 billion.
This is the sixth time in the last eight months that goods exports have declined year-on-year, although May’s decline was lower than the 12.6% fall recorded in April.
However, May’s exports were just 0.8% over April’s six-month low for outbound shipments’ value. Imports, on the other hand, spurted 13.8% sequentially in May from April’s 15-month low figure, which has been revised upward slightly to $50.15 billion from the $49.9 billion estimated earlier.
This is the first time that the goods trade deficit — which hit a 20-month low of $15.46 billion in April — has crossed the $20 billion mark since December 2022.
Awaiting demand revival
The Commerce Ministry attributed the moderation in exports’ growth through 2023 so far to “persisting geopolitical tensions and monetary tightening induced recessionary fears” that have triggered a decline in consumer spending across advanced nations.
Citing the World Trade Organisation’s upward revision in global trade growth for 2023 from 1% to 1.7%, the Ministry said it anticipates the revival of demand from July-August 2023 onwards.
Cumulatively, the first two months of 2023-24 have recorded a 11.4% decline in merchandise exports and a 10.24% dip in the import bill. The trade deficit over April and May has declined almost 8% over the same period last year to $37.6 billion.
Outbound goods shipments’ value had grown 6.7% last year to cross $450 billion, while imports had $714 billion, reflecting a 16.5% rise from 2021-22 levels.
‘Deficit to widen’
“The available trade data for April and May suggests that the current account deficit is likely to widen to ~$10-12 billion in the first quarter of 2023-24 from about $2 billion expected in the previous quarter. However, it will remain manageable at approximately 1.2% of GDP,” said Aditi Nayar, chief economist and head (Research and Outreach) at ICRA.
On the sequential spurt in the import bill during May, she said that the month typically tends to see higher imports of several items such as fertilisers, gold and fuels.
The 6.6% year-on-year decline was largely driven by lower commodity prices, but some key items such as iron and steel, machine tools, machinery, electronic goods, fertilisers and pharma witnessed a year-on-year expansion. “This has led to a sequential rise in overall imports, thereby taking the merchandise trade deficit to a five-month high,” Ms. Nayar said.
Engineering goods exports slow
The Ministry also stressed that the decline in import value of petroleum, vegetable oil, coal, coke and briquette, has been largely on account of the decline in commodity prices, while gold imports — which have fallen over 39% in the first two months of this year — are lower due to the import duty levied by the government last year.
Engineering goods’ exports, India’s mainstay in the export basket in recent years, dropped over 4% to $9.3 billion in May, taking the combined decline in the first two months of this fiscal year to 6%.
“It has been a tough time for engineering goods producers, with demand from most key markets slowing down. Barring markets in Latin America, West Asia, the North Africa region and parts of Europe, most other markets have seen muted demand,” said Arun Kumar Garodia, chairman of the Engineering Export Promotion Council of India, who hoped that demand would improve from larger markets in the second half of the year.
