The gloomy merchandise trade numbers for July may hold some positive signs of resilience in domestic demand and revival in private investments, with imports of electronics rising and machinery purchases from overseas hitting a record monthly high of $4.7 billion.
While the 15.9% decline in July’s merchandise exports marked a sixth successive month of contraction, a deeper dive into the numbers reveals a couple of glimmers of hope for the Indian economy along with a few worrying shifts in trajectory.
“Within imports, five of 15 key subcategories registered annualised expansion,” QuantEco Research economists said in a note. “Electronic items, with a growth of 14.9% emerged as the best performer, followed by machinery items, which clocked their record monthly inbound shipment of $4.7 billion,” they added.
“After a temporary decline in June, investment-related imports picked up again, as reflected in a 14% and 8.4% on-year rise in the import of electrical and non-electrical machinery, and machine tools, respectively, in July,” a CRISIL Market Intelligence and Analytics report said on Thursday.
The dip in exports as well as imports (down 17% in July) was largely fuelled by petroleum and gems and jewellery. Core (excluding oil and gold) exports and imports, fell by a much milder 5.7% and 7.5%, respectively.
“In fact, sequentially and on a seasonally adjusted basis, core imports registered positive growth, allaying some of the fears of a domestic demand slowdown setting in, as was indicated by a sharp slowdown in core imports in June. Among others, investment-centric imports such as of machinery and machine tools again gained pace,” CRISIL noted.
Core exports also grew sequentially from June levels, the report reckoned, though that trend is unlikely to be sustained as global growth is expected to be slower in the second half this year.
Moreover, an expected slowdown in domestic growth in the second half of this fiscal would keep a check on India’s imports, it said, indicating that the trade deficit which rose to $20.7 billion in July, may not be a cause for concern.
However, QuantEco economists are not as sanguine, noting that the core deficit had widened to a 9-month high of $10.3 billion from $6.8 billion in June.
“Going forward, the monthly merchandise trade deficit can be expected to start catching up with its corresponding levels of 2022-23 as international commodity prices have been firming up… annualised growth in the CRB Commodity Index [has] turned positive in August so far and would range between 3.5%-8.3% in the remaining months of 2023-24,” they cautioned, adding that India’s export curbs on agricultural products also pose a risk to the deficit.
CRISIL also noted that the decline in exports appears broad-based and the slowdown in demand is not just stemming from the West, but also from emerging markets, especially the Asia-Pacific, India’s largest regional export destination. “Exports are facing a double whammy from a fall in prices and volumes in many cases,” it underlined.
While shipments to the European Union and the U.S. were down 5.4% and 13.1%, respectively, in the April to June quarter, exports to Africa fell 22.7% and the Asia Pacific region reported the steepest dip of 23.9%.
