Initial estimates for India’s external trade performance in May are a harbinger of even tougher times ahead. The 10.3% decline in goods exports marks the fourth successive month of contraction in outbound shipments and the sixth such occasion in eight months. May’s $35 billion export value is only 0.8% over April’s figure that was a six-month low. Barring electronics exports, which grew healthily year-on-year as well as sequentially, exporters across sectors had a tough month. Engineering goods that make up over a quarter of India’s goods export basket, contracted for the 11th month in a row, while the employment-intensive textiles sector shrank for the seventh straight month. The 30% decline in petroleum exports (the seventh contraction in eight months) may largely be due to cooling global prices that are also affecting other commodities’ export values, if not volumes. After a 6.7% rise in 2022-23, goods exports are now down 11.4% over the first two months of this year. The current estimate of $25.3 billion for May’s services exports is quite sobering as well.
A 26.7% boom in services exports last year had helped narrow the steep goods trade and current account deficits amid surging global prices of commodities such as oil and fertilizers whose imports are inelastic for India. The trend reversal in that pace of growth began this March and has accelerated to a critical point with a mere 0.7% rise in global services receipts in May. The global slowdown that had clearly hit consumer demand for products, now appears to be infecting the appetite for services too. With IT companies slashing guidance and benching fresh recruits, some impact on domestic demand is visible and may intensify in coming months. Core imports (excluding oil and gems and jewellery) have contracted 5.5% so far in 2023-24. Overall goods imports are down over 10% through April and May, after surging 16.5% last year to $714 billion. May’s $57.1 billion import bill was just 6.6% below 2022 levels and almost 14% over April’s figure which had been the lowest in 15 months. This has lifted the merchandise trade deficit to a five-month high of $22.1 billion. Last month, the Commerce Ministry had expressed hope that demand from key markets may revive from August or September. Now, it believes the trend may improve from July or August. It has again cited the World Trade Organization global trade growth upgrade from 1% to 1.7% for 2023. Even if that were to fructify, it is far from the 2.6% growth averaged in the last 12 years and the respite for India may be limited. A ‘business as usual’ approach will not suffice any more to keep this key growth engine of the economy firing.
