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Published: June 16, 2023
Updated: June 16, 2023

India's Exports Witness Contraction for Fourth Consecutive Month; Trade Deficit Widens

Subdued external demand bring down exports

India's merchandise exports faced a challenging period in May as external demand remained subdued, leading to a contraction for the fourth consecutive month. Simultaneously, imports also experienced a decline for the fifth month in a row, resulting in a widening trade deficit. While lower commodity prices and the government's policy of substituting inbound shipments contributed to this trend, the country remains optimistic about the potential for demand recovery in major export destinations. This article explores the details of India's trade performance, the factors influencing it, and the outlook for the future.

Challenging Trade Performance:

India's merchandise exports registered a decline of 10.31% year-on-year in May, reaching $34.98 billion. The downward trend continued for imports as well, with a contraction of 6.59% to $57.10 billion. Consequently, the trade deficit reached a five-month high of $22.12 billion. On a sequential basis, while exports grew marginally by 0.7%, imports witnessed a substantial increase of nearly 14%.

Factors Influencing the Trade Scenario:

Global Economic Conditions:

The prevailing recession and slowdowns in several countries have impacted external demand for Indian goods. However, there is optimism that demand will gradually recover as major export destinations take measures to combat inflation and stabilise their economies.

Lower Commodity Prices:

The decline in imports can be attributed to cooling commodity prices, affecting various sectors differently. While merchandise imports contracted, specific items such as iron and steel, machinery, electronic goods, fertilisers, and pharmaceuticals experienced year-on- year expansion.

Analysis of Export and Import Segments:

Core Exports:

Non-petroleum and non-gems and jewellery exports, referred to as core exports, witnessed a contraction of nearly 4% to $26.22 billion in May. However, non-petroleum and non-gems and jewellery imports grew by 1.6% to $35.88 billion during the same period.

Key Sectors Affected:

Among the major export items, petroleum products, plastics and linoleum, gems and jewellery, engineering goods, and cotton yarn faced notable declines. On the positive side, electronic goods and pharmaceuticals demonstrated growth. In terms of imports, sectors such as coal, crude petroleum, precious stones, and gold experienced contractions.

Government's Export Promotion and Import Substitution Strategies:

To boost exports, the Indian government has initiated a comprehensive strategy focusing on investment promotion agencies, diplomatic missions, and relevant departments. The primary objective is to target 40 countries that account for 85% of India's total exports. In addition, the government aims to align industrial and trade policies to enhance both export promotion and import substitution.

Despite the challenging trade performance in recent months, there are signs of cautious optimism. Industry representatives believe that exports may exhibit improved growth from July onwards, especially in the third quarter of the calendar year. As the global economy recovers and demand picks up in key markets, Indian exporters anticipate a more favourable environment. However, it is crucial for policymakers to address various factors influencing trade, including market diversification, policy reforms, and competitiveness enhancement, to sustain long-term growth in India's export sector.