Source: Financial Express
Despite disruption in trade caused by strife around the Red Sea, exports have fared better than expected. This can be partly attributed to proactive support by the government in the form of easier access to credit, creation of a task force to investigate non-tariff barriers, and tackling sanitary and phytosanitary issues, among others.
India’s merchandise exports strengthened in January, rising 3.1 per cent on-year to $36.92 billion after 1.0 per cent growth in December. Despite disruption in trade caused by strife around the Red Sea, exports have fared better than expected, said a report by CRISIL. This, it added, can be partly attributed to proactive support by the government in the form of easier access to credit, creation of a task force to investigate non-tariff barriers, and tackling sanitary and phytosanitary issues, among others.
“Rising global tensions and unevenness in global growth, mean maintaining export momentum will not be an easy task. For instance, many core exports softened in January: electronic goods (9.3 per cent v 14.4 per cent), engineering goods (4.2 per cent v 10.2 per cent), and drugs and pharmaceuticals (6.8 per cent v 9.3 per cent). And some key agricultural exports have been under pressure partly due to the ban on rice exports,” the report added.
That said, exports of petroleum products reversed course, increasing 6.6 per cent to $8.21 billion compared with a decline of 17.6 per cent in December. Also, chemical exports seem to be gaining some traction, posting mild positive growth (0.3 per cent) after remaining in the contractionary zone for fifteen consecutive months. On the whole, core (non-oil, non-gold) exports grew 2.5 per cent on-year in January, compared with 5.4 per cent in December. Cumulatively, India’s merchandise exports have declined 4.8 per cent on-year in April-January this fiscal to $354.04 billion, compared with $372.1 billion a year ago.
“Overall, exports are displaying resilience in the face of unfavourable conditions. To be sure, they are getting support from a depreciating rupee. The real effective exchange rate (REER) based on export weights has declined 1.25 per cent on-year during April -December 2023,” said CRISIL.
Imports on growth trajectory too
Notably, India’s merchandise imports, too, grew at a similar pace as exports — up 3 per cent on-year to $54.41 billion from $52.83 billion in January 2023. Petroleum and crude products imports turned positive in January, increasing 4.3 per cent on-year. Sequentially, oil imports rose to $16.57 billion in January from $14.94 billion in December. Import of precious metals, too, rose significantly in January. Gold imports surged 173.6 per cent on-year, compared with 156.5 per cent in December. Silver imports rocketed 323.5per cent compared with a contraction of 19.1 per cent in December. Imports of pearl, precious and semi-precious stones picked up 6.2 per cent on-year, after recording a fall of 11.7 per cent the previous month. However, barring these, core imports (non-oil and non-gold) fell 2.3 pe cent on-year compared with a 0.2 per cent decline in December.
With exports doing better than imports on a sequential basis, merchandise trade deficit narrowed to $17.49 billion in January from $19.8 billion in December. Cumulatively, in April-January this fiscal, merchandise imports contracted 6.9 per cent on-year to $559.55 billion, helping narrow the merchandise trade deficit to $205.51 billion from $229.38 billion.
India’s services exports continued to grow positively, rising 1.3 per cent on-year in December 2023, while imports contracted. As a result, the services trade balance remains robust at $15.97 billion in December, compared with $15.38 billion in December 2022. India’s performance in services exports has largely remained strong this fiscal and is a big positive for keeping India’s current account deficit in check, said CRISIL.
Outlook
While merchandise exports has been positive in the past two months, it remains to be seen if it can sustain, given the global headwinds. While the near-term challenge for India’s exports from the disruption caused by the Red Sea strife has been contained so far, how it will impact prices when export contracts are renewed will bear watching. Barring this hiccup, CRISIL said, forecasts by major multilaterals of better trade growth this year over last is encouraging. The current account remained in the safe zone in the second half of this fiscal with trade deficit lower at $87.86 billion during October-January. Robust services trade surplus and healthy remittances are positives. Consequently, we expect India’s current account deficit to be eminently manageable this fiscal, it concluded.
