Slowing merchandise exports may temper India growth story

The decline can be partly attributed to a high base. Then the price effect was at play, aided by lower global oil and other commodity prices. The former has indeed led to a sharp 45% y-o-y contraction in oil exports, but note that non-oil exports have been falling too. Further, the dip in the non-oil exports basket is largely broad -based, underscoring the fragility in the exports story.

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Notwithstanding the continued focus on bolstering India’s manufacturing exports, the segment has seen a drop across both high and low-skill categories. Exports of high-skill items such as engineering goods, and organic and inorganic chemicals, which accounted for almost a third of the total goods exports fell in March. Further, low-skill manufacturing exports like readymade garments, plastic and leather products have also been contracting. The silver lining is electronic exports that have continued to grow at a robust pace, but that alone wasn’t enough to drive headline exports growth higher.

Amid worries about weaker global growth, the exports outlook appears subdued as well. In the past, during the global financial crisis in CY09, and the covid-19 pandemic impact in CY20, India’s exports took a beating when global growth was weak.

Last week, in the latest World Economic Outlook report, the IMF has estimated global GDP growth to decelerate to 2.8% in CY23 from 3.4% in CY22. The impact of slowing global growth has already started to reflect on trade. As per CPB World Trade Monitor, world trade volumes have been contracting from November to January after recording growth in the preceding two years. India’s exports are not totally immune to a global trade slowdown and therefore, the outlook is bleak.

Slowing export growth surely has consequences for the external sector dynamics but it has even bigger implications for the overall economic momentum, given its over 20% contribution to India’s GDP. The saving grace is that a likely moderation in the country’s imports amid easing global commodity prices and robust growth in service sector exports may keep vulnerabilities at bay and the current account deficit contained.

However, if export growth remains muted for long, it would be a drag on the India growth story through its far-reaching implications for the country’s crucial manufacturing sector.