Merchandise export growth slowed to 15.5% on-year in May from 30.7% in the previous month even as the surge in imports continued unabated on the back of elevated global commodity prices, especially of crude oil, driving up trade deficit to a fresh peak of $23.3 billion.
According to the preliminary data released by the commerce ministry on Thursday, exports eased from the lofty $40-billion mark for the first time in three months and stood at $37.3 billion in May, possibly reflecting the impact of a gradual demand slowdown in advanced economies that had contributed substantially to India’s post-pandemic export resurgence. Fresh challenges in the global supply chains and the curb on wheat supplies, too, weighed on export growth.
Goods imports, meanwhile, widened a tad sequentially to $60.6 billion in May, driven substantially by a massive 760% year-on-year jump in gold imports to $5.8 billion and persistent surge in purchases of crude oil & petroleum products and coal. A spurt in prices of crude oil and coal just served to inflate the import bill of a net commodity importer like India, raising the risks of a jump in current account deficit.
Without substantial easing of international commodity prices, trade deficit will likely exceed the crucial $20-billion mark in most of the months in FY23, according to an earlier Icra estimate. Consequently, the CAD is estimated to rise to $20-23 billion in the June quarter, compared with $15.5-17.5 billion in the previous three months, according to Icra. Of course, senior government officials have assuaged concerns about financing the CAD.
Among high-value segments, the rise in exports in May was led by petroleum products (53%), followed by electronics (41%) and garments (23%). At $24 billion, core exports (excluding petroleum and gems and jewellery) growth slowed down to 8.6% in May from 19.9% in the previous month.
Core import growth, too, slowed from April’s 34.4% but still remained high at 27.2% to $26.4 billion, suggesting decent domestic demand. Among the key commodity segments, purchases of coal jumped 168% to $5.3 billion, petroleum 92% to $18.1 billion and electronics 28% to $5.4 billion.
As FE has reported, while orders are still flowing in from certain jurisdictions, the supply-side disruptions in the aftermath of the Russia-Ukraine war have hit domestic exporters’ ability to ship out goods. The surge in international shipping costs has made the matter worse. The World Trade Organization, too, has slashed its 2022 global trade growth forecast to 3% from an earlier projection of 4.7%, which would weigh on the prospects of Indian exports as well.
However, as commerce and industry minister Piyush Goyal said earlier, exporters will likely benefit from the recently-concluded free trade agreement with the UAE and another deal with Australia.
Importantly, merchandise exports hit a record $422 billion in FY22, as an industrial resurgence in advanced economies (before the Ukraine war in late February) stirred demand for Indian goods.
The country’s exports had remained below par in the past decade, having fluctuated between $250 billion and $330 billion a year since FY11; the highest export of $330 billion was achieved in FY19. So, a sustained surge in exports for a few years will be crucial to India recapturing its lost market share, analysts have said.
EEPC India chairman Mahesh Desai said engineering goods exports witnessed growth of almost 8% to $9.3 billion in May despite strong external headwinds. However, he conceded that “in the short and medium term, there are fears of demand slowdown in advanced economies which could potentially dent the ongoing momentum”.
