India’s exports and imports further weakened in April this year, in continuation of the declining trend that has been observed since June last year. Imports declined more than exports in April, narrowing the trade deficit. The decline in exports was widespread, affecting most of the major items. The decline in imports was also recorded across all major commodities. But more importantly, the fall in imports and exports was not limited to India. Many nations have recorded similar declines, pointing to a slowing global demand.
The 2022-23 Indian Economic Survey had warned that the “slowing global demand will weigh on India’s merchandise exports.” It cited the International Monetary Fund (IMF)’s forecast, which said that global growth will slow down in 2022 and 2023. The latest IMF report (April 2023), estimates that global growth could slow to about 2.5% in 2023, in a “plausible alternative scenario.” This scenario of the IMF assumes that the financial sector stress in the U.S. triggered by the sudden collapse of three regional banks is not contained. This, according to the IMF, would be the “weakest growth since the global downturn of 2001, barring the initial COVID-19 crisis in 2020 and the global financial crisis in 2008-09.”
The Economic Survey’s warning came true with the year-on-year trade growth starting to decelerate from the start of the 2023 calendar year.
Chart 1 | The chart shows the y-o-y % change in India’s merchandise exports and imports every month since January 2022. In April 2023, imports and exports shrank by 14.1% and 12.7% respectively.
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The Economic Survey had also said that the “non-oil, non-gold imports, which are growth-sensitive, may not witness a significant slowdown as Indian growth continues to be resilient.”
Chart 2 | The chart shows the year-on-year change in imports of major commodities (in %)
However, as Chart 2 shows, the decline in imports was seen across major commodities. The chart shows the y-o-y % change in imports of select commodities. The items listed formed 65% of India’s import basket in FY23. Inbound shipments of fertilizers and gold, the two commodities whose imports fluctuate the most, shrank by over 40% in April, while vegetable oil imports were a close second with a 37.8% decline.
In parallel, the contraction of India’s merchandise exports too has been broad-based. Along with petroleum products, the exports of engineering goods, gems and jewellery, chemicals, and readymade garments and plastics contracted or grew at a slower pace in 2023 (Chart 3).
Chart 3 |The chart shows the year-on-year change in exports of major commodities (in %)
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While exports of electronic goods continue to see growth, the 26.5% pace in April 2023 was the slowest in 15 months. The exports of rice and pharma products were the only bright spots amid the gloom. The chart shows the y-o-y % change in the exports of select commodities. The items listed formed 75% of India’s import basket in FY23.
The recent decline in exports is a global phenomenon. The monthly economic review released in April by the Department of Economic Affairs said that exports surged in FY22 due to pent-up demand following the easing of COVID-19. But they became moderate in FY23 as the invasion of Ukraine and the monetary tightening of global central banks meant that discretionary consumer spending plummeted in advanced nations.
Due to internal demand slowdown and external geopolitical tensions, both imports and exports of many developed and developing nations have been contracting in 2023.
Chart 4 | The chart shows the y-o-y % change in imports and exports of select countries for which the latest data was available. Across nations, both imports and exports declined in some or all the months of 2023.
Source: Centre for Monitoring Indian Economy and the Organisation for Economic Co-operation and Development
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