India’s Merchandise Exports: Steady In Choppy Waters
India’s push to bilateral free trade agreements and its ambition to grow its manufacturing sector should also support goods exports in the near term
India’s merchandise exports seem to have weathered the headwinds quite well so far amid heightened geopolitical tensions that have rendered the global environment highly uncertain. India’s goods exports have fared well, despite the turbulence in the overseas markets, including disruptions on account of geopolitical issues, the Crisil Ratings said in a report.
Upwardly revised global growth forecasts and better trade volume growth forecast by the World Trade Organisation bode well for India’s exports going ahead. India’s push to bilateral free trade agreements and its ambition to grow its manufacturing sector should also support goods exports in the near term.
That said, given the uneven global growth environment and the persisting geopolitical issues, there could be some hiccups along the way. In such a scenario, continuous efforts and government support would be required to keep the export machinery going.
“In the past few months, there has been some improvement in exports to Northeast Asia (led by China) and ASEAN. It remains to be seen if this trend can sustain,” according to the Crisil Ratings.
Notably, India's merchandise exports surged by 1.07 per cent to nearly USD 35 billion in April, despite global market uncertainties stemming from economic slowdowns and geopolitical tensions, as per data from the Union Commerce Ministry released on Wednesday. However, imports saw a significant increase of 10.25 per cent during the same period, reaching USD 54.1 billion, primarily due to heightened gold purchases.
Merchandise export growth in April 2024 was driven by petroleum products, organic and inorganic chemicals and pharmaceutical goods. Among goods exports, 13 out of 30 principal commodities have recorded positive year-on-year growth, while exports of 17 commodities have declined year-on-year. Although India's overall goods export may have seen a marginal increase, the combined exports of 23 commodities, including agro-related and labour-intensive principal commodities, have declined by 3.6 per cent, dropping from USD 10 billion to USD 9.6 billion.
However, the merchandise trade deficit has surged significantly by 32.3 per cent year-on-year, escalating from USD 14.4 billion to USD 19.1 billion, primarily due to a sharp increase in oil imports. This upsurge in oil imports is attributed to the heightened international prices of the Indian basket oil, which, according to the Petroleum Planning and Analysis Cell, has increased by 7 per cent year-on-year for April. We anticipate the trade deficit to further expand in May, given the expected sharp increase in oil prices for the Indian oil basket.
Some Crucial Misses
Among India’s top core exports, organic and inorganic chemicals remained a laggard, declining 3.2 per cent to USD 29.4 billion in fiscal 2024, from USD 30.3 billion in the previous fiscal. Labour-intensive exports remained in the red, Crisil Ratings.
Other than gems and jewellery, exports of a few of India’s large, labour-intensive sectors remained under stress – textile products (mostly ready-made garments, even though some categories such as cotton yarn, fabrics, madeups and handloom products managed to increase their exports during the fiscal), leather and leather products and marine products.
The report stated that sharp decline in energy prices, especially crude oil prices, was one of the biggest contributors to the fall in India’s overall merchandise export bill. With over 20 per cent1 share, oil is India’s top export item, and hence, its movement has a large bearing on India’s total export earnings.
For instance, India’s petroleum export bill reduced to $84.1 billion in fiscal 2024, from $97.5 billion in fiscal 2023, as crude oil prices fell. In volume terms, however, India exported out more tonnes of petroleum products in fiscal 2024.
“But if we leave out petroleum and gems and jewellery exports (India’s other top export items, which were also down 13.8 per cent), core exports managed to grow (up 1.4 per cent, to $320.2 billion, from $315.6 billion),” it added.
The rise in core exports despite the broad-based decline in international commodity prices suggests India was able to ship out a higher volume of most goods, indicating robust demand for Indian goods in international markets.
Way Forward
Amid the ongoing geopolitical crisis across the globe, finalisation of mega free trade agreements (FTAs) may boost India's exports of labour-intensive goods and contribute to the country's economic growth, the World Trade Center (WTC), Mumbai has said.
The increasing oil prices may pose a risk to India's current account position, which was manageable in the last financial year. However, the expectation of finalizing Free Trade Agreements (FTAs) with economies such as Oman and the UK may present new export opportunities to Indian exporters. The current financial year may prove to be challenging yet filled with opportunities for India's international trade," said Vijay Kalantri, Chairman, MVIRDC World Trade Center Mumbai.
India's merchandise exports surged by 1.07 per cent to nearly USD 35 billion in April, despite global market uncertainties stemming from economic slowdowns and geopolitical tensions, as per data from the Union Commerce Ministry released on Wednesday. However, imports saw a significant increase of 10.25 per cent during the same period, reaching USD 54.1 billion, primarily due to heightened gold purchases.
Kalantri said, “Following a year-on-year decline in the previous financial year, India's merchandise exports have begun the current financial year on a positive note, showing a year-on-year growth rate of 1.08 per cent for April 2024. Additionally, service exports have sustained their momentum from the previous year, demonstrating a robust growth of 14.7 per cent, rising from USD 25.78 billion in April 2023 to USD 29.57 billion in April 2024.”
