Slowing demand in advanced economies, rising recession fears, and increased geopolitical tensions have all weighed on Indian exports in recent months.
India's merchandise exports dropped 3.5% in September to $32.62 billion from $33.81 billion in the same month of last year, while imports rose to $59.35 billion as against $56.29 billion in the corresponding month of last year. The trade deficit in September widened to $26.73 billion from $22.48 billion, up by 19% in the same month of last year. In July 2022, India's trade deficit widened to a record $30 billion, and in August it came down to $27.98.
Restrictions on exports of broken rice and a 20% export tax on other varieties of the critical cereal, imposed during September, led to a nearly 6% drop in its exports during the month,Since the start of the Russian-Ukrainian conflict, the price of crude oil and other commodities has increased globally, and the domestic coal shortage has increased coal imports.
Coal imports jumped nearly 57% from $2.18 billion a year ago to over $3.43 billion in September, even as gold imports slid 28.5% to a little over $3.6 billion compared to $5.11 billion last September.
Between April and September 2022-23, exports increased by 15.54% to USD 229.05 billion. Imports increased by 37.89% to USD 378.53 billion during the period. The trade deficit increased to USD 149.47 billion in the first six months of the fiscal year, up from USD 76.25 billion in April-September 2021-22.
According to experts, the countries to which India exports the most, such as the United States, the United Arab Emirates, the European Union, and China, are presently experiencing high inflation, and countries have trimmed their growth forecasts for the upcoming quarters.
Furthermore, central banks are acting quickly to combat inflation by raising interest rates and also withdrawing excess liquidity that has been injected in the last two years to counteract the economic impact of Covid-19. As a result, global trade is slowing, and disruptions in global shipping and supply chains caused by strict Chinese lockdowns and the Russian-Ukraine war are also affecting the trade globally.
After exports breached the $400 billion mark in FY22, the commerce ministry has not projected any fresh export targets for FY23 due to uncertainty surrounding world trade.
On Thursday, the World Trade Organization cut its forecast for global trade volume growth to 1% from 3.4% in earlier estimates, citing global uncertainties, PTI reported.
According to the WTO, import demand is expected to soften as growth slows in major economies for different reasons. In Europe, high energy prices stemming from the Russia-Ukraine war will squeeze household spending and raise manufacturing costs, it said.
Monetary policy tightening in the United States will have an impact on interest-sensitive spending in areas such as housing, automobiles, and fixed investment. China is still dealing with COVID-19 outbreaks and production disruptions, as well as weak external demand.
Finally, growing import bills for fuel, food, and fertilisers could lead to food insecurity and debt distress in developing countries, it added.
Adding to the difficulties, earlier in August, the EU announced the withdrawal of GSP benefits for India from January 1, 2023. This will affect $7.9 billion worth of Indian exports to the EU that were subject to zero import duties, according to media reports.
The GSP is the only route for Indian exporters to get tariff concessions as the Indian-EU free trade agreement is yet to be formalized. The EU is India's third largest trading partner, accounting for €88 billion worth of trade in goods in 2021, or 10.8% of total Indian trade, after the USA (11.6%) and China (11.4%).
Meanwhile, the free trade agreement between India and the EU might take longer than expected. On the other hand, after a decade of negotiations, Australia has signed a historic free trade deal with India, reducing its economic dependence on China.
Going forward, experts believe that if the trade deficit widens in the coming months, it will exacerbate the current account deficit, affecting the Indian rupee and foreign exchange reserves.
Last month, Standard Chartered raised its estimate of India's current account deficit forecast for the fiscal year ending March 2023 to 3.8% of India's GDP from its earlier estimate of 3.0%, which is a higher projection than peers Morgan Stanley, Goldman Sachs, and Nomura.
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