The CRISIL report said that the overall goods exports remain under pressure as global growth is softening and purchasing power is impacted by high inflation. Moreover, there has been a shift in focus from manufacturing towards services.
While the declining streak of India’s merchandise exports continued for the seventh straight month in August, the pace slowed to 6.9 per cent on-year to $34.5 billion as compared to an average of 15 per cent slide in the preceding quarter, said a CRISIL Ratings report. This, it said, indicates some sequential improvement. Further, while oil exports continue to witness sharp decline with fall of 30.7 per cent on-year in August due to lower on-year prices, both non-oil and core (non-oil, non-gold) exports grew, but only mildly, for the first time in nine months in August. This was also helped by a low-base effect. The report stated that sectors like pharmaceuticals, electronic goods, ceramics and some textile categories registered healthy export growth beside a sequential uptick in gems and jewellery exports.
The CRISIL report said that the overall goods exports remain under pressure as global growth is softening and purchasing power is impacted by high inflation. Moreover, there has been a shift in focus from manufacturing towards services, as indicated by purchasing manager indices (PMI), especially in the advanced economies.
Cumulatively, India’s merchandise exports fell 13.1 per cent on-year to $170.7 billion during April-August 2023 from $196.3 billion in the year-ago period. Merchandise imports, too, fell in August and the pace of their contraction was slower as well. Put another way, there was a sequential uptick. “At $58.6 billion in August — the highest in eight months — merchandise imports were down a mere 5.2 per cent on-year (compared with an average decline of 13.7 per cent in the previous three months),” it said.
Further, it added that while overall merchandise imports fell, both non-oil and non-oil, non-gold imports grew on-year in August indicating healthy domestic economic momentum and increased local demand in view of the August festive season.
With imports increasing faster sequentially than exports, merchandise trade deficit rose to a 10-month high of $24.2 billion in August from $20.1 billion in July. With the recent uptick in energy commodity prices, especially that of crude oil, India’s oil trade deficit has gone up in the past two months and will remain a key monitorable, it said.
In terms of services export growth, it is estimated to have declined to 3.8 per cent in August after a strong 12.7 per cent on-year growth in July. “But services imports continued to shrink, thereby keeping the services trade surplus intact. This augurs well for India’s overall trade balance, especially at a time when merchandise exports are facing headwinds,” CRISIL said.
The way ahead
Merchandise exports are increasingly facing headwinds from the slowdown in goods demand globally, not only in advanced economies such as the United States and euro area but also in emerging markets, especially in the Asia Pacific region. Exports are facing a double whammy from both a fall in prices and volumes in many cases. That said, deceleration in domestic growth is also leading to softening of India’s imports, albeit not as much as the slowdown in exports. But at the same time, the services trade surplus remains robust and remittances are expected to remain healthy. As a result, CRISIL said, “We project India’s CAD, which was 2.0 per cent of gross domestic product in fiscal 2023, to soften to 1.8 per cent this fiscal.”
Source:financialexpress.com