India’s exports declined about 16.7% in October 2022 compared with the year-earlier period. This is the first slide reported for any month since February 2021 when the globe was in the grip of the second COVID-19 wave.
Last month, imports rose at a much milder pace than earlier, likely because of softening commodity prices worldwide. Trade deficit widened by as much 50%.
Engineering goods, which have lent a strong shoulder to India’s goods exports in recent years, slid 21%. The government had set a target for FY23 at $127 billion for this sector. Which means, we ought to have exported $74 billion in April-October, but we came up short at $62.5 billion.
Engg Exports Promotion Council India Chairman Arun Garodia attributed the slowdown to high inflation in developed regions, falling demand in China, slowdown in EU, fear of a slowdown in the US and the Russia-Ukraine war.
The Commerce Ministry also pointed out that for October, $2 billion worth of exports declining was seen in steel and allied products, highlighting the fact that the government had levied an export duty on these products to help increase local availability and hence temper local prices. The government has since removed this duty.
The Ministry also highlighted that in the month of Diwali every year, workers tend to take leave, thus impacting output. It said we need to wait and watch whether the export decline was only a blip or whether this was a trend that would stay.
Electronic goods exports gave reason for cheer, being among a handful of segments to witness a rise in export growing about 38% to $1.8 billion.
Do declining imports signal trouble with our own demand?
India’s imports too have been moderating sequentially for four months now, but a decline in petroleum imports can be read as a signal for a dip in domestic demand as well.
The Hindu’s editorial in mid-November pointed out that the government urgently needs to bring out a revised foreign policy to address both our historical trade imbalance, and the more recent slowing of exports, rather than wait out the tumult as it intends to, having again deferred the new policy release till April next.
Competitors like Vietnam have already been stealing a march over us in terms of companies looking at a China+1 policy – ie, derisking supply chains by lowering dependence on China solely and looking at other countries such as Vietnam, Philippines or India, for their additional manufacturing units.
Govt. bets on domestic demand
The monthly Finance Ministry review for October released last week acknowledges a slowing export scenario but emphasises that domestic demand will carry the day for us.
The report says the global slowdown is driven by what it calls the ‘confluence of stubbornly high inflation, rising borrowing costs and geopolitical tensions, but cites local demand as being ‘resilient’. It also expects a ‘re-invigorated’ investment cycle will spur growth and jobs creation in the coming days.
Exports last year accounted for roughly a third of our GDP.
So, for two-thirds of our economy to make up for weakness in the other one third is no easy task, especially when India too, like other countries, has been struggling with inflation and jobs growth.
Interestingly, the Ministry says that recently, inflation has been high driven more by local factors, including higher food prices, than imported reasons and that those pressures are set to dampen thanks to easing international commodity prices and the arrival of the Kharif crop. You may recall that retail inflation has been consistently above 7% these past few months, but stood at 6.8% for October.
In the monthly report, the Ministry also pinned hope on the fact that last month saw the lowest sign-ons for the year for the employment guarantee scheme MGNREGS. It is hoping that a spike in tractor sales in September and October reflects improved sentiment.
One seemingly positive signal for the economy is private sector capital expenditure which the Chief Economic Adviser V. Anantha Nageswaran says is on track to touch ₹6 lakh crore this fiscal and that would be highest in the past 6 years.
Private capex typically depends on credit, or loans, from the banking system. And that has seen healthy growth too in the recent past touching a recent high of 18% last month. There have been reports of banks scrambling to gather deposits – with videos of managers and their teams walking the streets announcing deposit rates to help mobilise funds which in turn fund credit growth. Whether this credit growth is due to inflation and low base effect from last year, which was ravaged by the second COVID-19 wave remains to be seen over the coming months.
How comfortable is India’s foreign exchange reserve position?
When we talk global trade, economists generally look at our forex reserves status. The question to ask here is: how many months worth of imports can our forex reserves cover?
For the week ended November 18, foreign exchange reserves stood at about $548 billion. If we take October imports at $56.7 billion (an 8-month low) as a benchmark, then we have roughly about 9-10 months’ worth of import cover which isn’t as healthy as a 14-to-15-month cover that we had seen during the pandemic. But, economists also feel this isn’t as bad as in 2013 when foreign investors began pulling out of our financial markets. That was when we had less than seven months’ worth of import cover. And if anything, forex reserves have been rising for two weeks consecutively ended Nov 18, shining some light of hope for the future.
By the time you watch this video, the government would likely have announced GDP figures for the quarter ended September. More on that in future episodes of Business Matters
Script and presentation: K. Bharat Kumar
Videography: Johan Sathyadas
Production: Shibu Narayan
