Wednesday, 09 Oct, 2024
By: Anshul Vipat
Weakening global demand amid a synchronised rise in interest rates to ward off multi-decade high inflation has led to economists predicting a gloomy 2023 for India, with the poor external environment expected to weigh on India's growth
India's merchandise trade deficit in December was largely flat at $23.76 billion compared with $23.89 billion in the previous month, according to the export and import data released by the government on Monday. India's December merchandise exports rose to $34.48 billion from $31.99 billion in the previous month, and imports rose to $58.24 billion from $55.88 billion last month. This is the second time in three months that the value of outbound merchandise shipments has tanked year-on-year. In October 2022, goods exports had dropped 16.7% to slip below the $30 billion mark for the first time in 21 months, and risen a mere 0.6% in November.
Consequently, the country’s merchandise trade deficit inched up from just under $24 billion in November to $24.24 billion in December, remaining under the $25 billion mark for the second month in a row after five months of $25 billion plus deficits, including the record $30 billion deficit in July 2022. Weakening global demand amid a synchronised rise in interest rates to ward off multi-decade high inflation has led to economists predicting a gloomy 2023 for India, with the poor external environment expected to weigh on India's growth.
Higher imports led to a rise in trade deficit to almost $23.8 billion in December from $22.6 billion in the previous month, although it’s still way below July’s record level of $30 billion. A trade deficit occurs when a country imports more than it exports. In other words, when a country buys more than it sells, it has a trade deficit.
Exports fall in major commodities
The export decline in October was rather broad-based, as 19 of the 30 key segments–ncluding petroleum products, engineering goods, gems and jewellery, textiles and garments, drugs and pharmaceuticals – witnessed contraction, due to an economic slowdown in key markets that started to weigh down demand. Engineering shipments declined about 12 percent in December to $9.08 billion while exports of gems and jewellery in December fell 15.2 percent to $2.54 billion.
Other export sectors which recorded negative growth in December 2022 include coffee, cashew, leather goods, pharma, carpet and handicrafts. Petroleum products exports too contracted about 27 percent to $4.93 billion in December last year.
Exports impacted due to global slowdown and festive season
Commerce Secretary Sunil Barthwal pointed out that both global as well as domestic factors had an impact on India’s exports. He also pointed out the “heavy impact” of the festival season. “Tightening of monetary policy in most of the developed world – Europe, the US and elsewhere – puts less money in the hands of the public. Therefore, consumption slows down. These are going to be tough times for us. There will be a lot of headwinds for us, and this will impact our exports too,” Barthwal told reporters.
Global inflation, Russia-Ukraine war, simmering China-Taiwan crisis and supply disruptions are hurting economic growth worldwide, leading to poor demand, experts say. The pinch from slowing external demand is going to get more painful for Indian economy in the months to come
A looming global recession means that growth in exports will be a tough challenge. According to analysts, the current account deficit of India will almost certainly cross 5 per cent of GDP in the current year. That is definitely a worrying signal. Analysts reckon that unless value of crude oil, coal, fertilisers and gold doesn’t come down substantially, the trade deficit for this year would comfortably surpass $ 250 billion.
Thanks to a weakening Rupee and the exit of short term investors from Indian stock markets, the total foreign exchange reserves have fallen by a significant $110 billion to USD 530 billion in the last few months. Most analysts expect that the investors would not be back in a hurry as they are exiting all emerging markets; not just India. In the event, it becomes critical that the dollar inflows though foreign direct investment and through remittances maintain their momentum.
Although some parameters has shown hope for our economy. There has been a growing trend in domestic consumption. This is good news for the consumer market. Besides, as per latest figures, both the retail inflation and food inflation has declined significantly. The industrial production is increasing and consumer sentiments is at record high.
