How a slowing world hurts our exports sector

How a slowing world hurts our exports sector

Worries of a recession in the West, and a prolonged lockdown in China, have begun impacting India’s exports. Official data shows exports in August fell from July, and remained little changed from a year ago.

What is the estimate for exports in FY23?

Official estimates say merchandise exports may grow 7-8% to at least $450 billion in FY23, after a record $420 billion in FY22. However, much depends on the demand in the West. IMF has already cut the growth estimates for major European economies. Moreover, fresh lockdowns in China are also a major concern. The commerce department is set to unveil the foreign trade policy on 30 September, which is expected to support exports through various incentives. About $8-9 billion in additional trade is expected in the next two months with Russia and Sri Lanka, commerce secretary B.V.R. Subrahmanyam has stated. 

Can India cut imports to trim trade deficit?

Subrahmanyam has indicated that boosting exports rather than curbing imports would be the government’s approach. He said that many imports such as petroproducts and edible oil are inelastic. Some economists believe that rising imports are also a sign of recovery and that much of India’s exports such as petroleum products and gems and jewellery have a strong import component. While exports fell on a sequential basis, trade deficit eased slightly in August to $28.7 billion from a record high of $30 billion in July. After a record $642 billion in 2021, India’s currency warchest has dipped to $561 billion. 

What does the trade deficit look like in August? 

The trade deficit, or the gap between exports and imports, remains at record high levels, even as it narrowed marginally to $28.68 billion in August from $30 billion in July. Worryingly, imports were nearly double the value of exports during the month. This is expected to widen India’s current account deficit to over 3% of GDP in 2022-23 from 1.2% of GDP last year. 

What are the sectors most affected? 

Engineering goods exports last month registered a steep decline of 15% to $8.25 billion compared to August last year. The commerce secretary said that in the case of textile, leather, and consumer products, foreign retail chains restricted taking deliveries in anticipation of lower demand. Aditi Nayar, chief economist, ICRA said that a y-o-y dip in exports, led by sectors such as engineering goods, gems and jewellery and yarns and textiles suggests a cautious outlook for external demand going ahead.

Will India’s free trade agreements help? 

India is negotiating several FTAs, and has completed one with the UAE, which has helped textile, gems and jewellery exports. FTAs with the UK, EU, and Canada could boost apparel, textile and leather industries. However, the government is yet to announce the names of the seven states where the mega-textile parks will be set up. The commerce ministry has said that the India-UK negotiations will be completed by Diwali and talks with Canada and Australia will also be complete by the end of the year.