Merchandise exports are increasingly facing headwinds from the slowdown in goods demand globally, not only in advanced economies such as the US and euro area but also from emerging markets, most importantly the Asia-Pacific, said Crisil Ratings in a report.
Crisil’s report stated that exports are facing a double whammy from a fall in prices and volumes in many cases.
That said, “an expected slowdown in domestic growth in the second half of this fiscal would keep a check on India’s imports. At the same time, services export growth appears to be turning robust again,” the report.
Crisil projected India’s current account deficit (CAD), which was 2.0 per cent of the gross domestic product (GDP) in fiscal 2023, to soften to 1.8 per cent this fiscal.
Continuing their declining streak, India’s merchandise exports contracted for the sixth consecutive month in July, and at USD 32.3 billion, were down 15.9 per cent on-year.
“If not for a favourable base effect (as exports had fallen substantially on-month last July), the annual contraction this July would have been even larger,” the report mentioned.
The report added that the export figure for June was revised up a good USD 1.4 billion (to USD 34.3 billion, from USD 32.9 billion earlier), which means exports contracted slightly less (18.8 per cent from 22.0 per cent earlier).
Notably, the 15.9 per cent contraction in July was largely a result of the slowdown in oil exports, which were down 43.8 per cent on year. Core exports, i.e., non-oil, non-gold exports, fell a much lesser 5.7 per cent.
“In fact, sequentially and on a seasonally adjusted basis, core exports marginally rose in July, due to an improvement in the exports of other key categories such as engineering goods, organic and inorganic chemicals and labour-intensive export categories such as gems and jewellery, ceramic products and glassware, and a few textile products (carpets, man-made yarn, and fabrics, among others),” it added.
That said, the pressure on goods exports remains, and the sequential improvement in core exports is unlikely to be sustained as global growth is expected to be slower in the second half of this year.
Plus, the current resilience in demand conditions seen in advanced economies, which are key destinations for India’s exports, stems largely from services.
“Moreover, the decline appears broad-based, in that goods exports are slowing not only to the West but also to emerging markets, especially the Asia-Pacific, India’s largest regional export destination,” Crisil stated.
