In October 2022, India’s exports dropped drastically by around 16.7% compared to the same period in 2021. This noticeable decrease raises major concern over the slowdown of the country’s exports. For instance, the country saw an alarming decline of USD 2 billion in steel-associated products exports.
On a positive note, there was a growth in electronic goods exports. This segment saw an increase of about 38%, totaling around USD 1.8 billion.
Factors Behind Slowed Export Demand
Various factors contribute to the slowing of India’s export demand. Global economic growth is currently experiencing a sharp deceleration due to high inflation rates across developed countries and stricter monetary policies. The effect of this global economic slowdown impacts demand for Indian goods which subsequently causes a contraction in exports.
Additionally, local inflation, particularly with food prices, is another contributing factor. It has been observed that these pressures are likely to alleviate due to the easing of international commodity prices and the arrival of the Kharif crop season. Retail inflation has generally stayed above 7%, although it dropped to 6.8% in October 2022.
Impact on Specific Exports
Oil export growth also took a hit, falling to -11.4% year-on-year from 43.0% as of September 2022. This dip reflects lower global crude oil prices. Non-oil exports experienced a similar downward trend, plunging by -16.9%. The most affected were iron ore, handicrafts, textiles, agricultural goods, among others. Notably, engineering goods, which significantly contribute to the nation’s goods exports, saw a 21% decline.
Rising Global Trade Tensions
Global trade tensions, such as the recent trade war between the US and China, have greatly impacted global growth. This has affected manufacturing and exports all over the globe, including India’s economy.
Positive Signals to the Economy
Despite the lower export scenario, there’s likelihood that domestic demand will nonetheless carry through. With the rejuvenation of the investment cycle, growth and job creation are anticipated in the near future. The private sector capital expenditure is set to hit six lakh crore in fiscal year 2022-2023, marking the highest of the past half-decade. The growth of credit supply from banking systems has seen a healthy surge recently.
Comparison with Other Exporting Nations
Vietnam, another country predominantly driven by exports, recorded a 4.5% export growth rate to USD 29.18 billion amid sustained foreign demand. Similarly, the Philippines reported a 20% export growth in October 2022. China, however, witnessed a decrease due to strict lockdowns affecting manufacturing output despite the current easing.
Status of Indian Forex Reserve
As of the week ending December 2, India’s foreign exchange reserves stood at approximately USD 561 billion. With October imports recorded at USD 56.7 billion, there is a 9-10 months’ worth of import cover. Although this isn’t as robust as the 14-15 month cushion experienced during the pandemic, economists believe it’s not as severe as the 2013 scenario when foreign investors started to withdraw from India.
India’s Export Promotion Schemes
Several schemes have been introduced to promote India’s exports. These include the Merchandise Exports from India Scheme (MEIS), Service Exports from India Scheme (SEIS), Remission of Duties or Taxes on Export Product (RoDTEP), and Rebate of State and Central Taxes and Levies (RoSCTL). These incentives aim to boost exports, promote foreign demand for Indian goods and services, and avoid double taxation.
Way Forward
The government must revise its foreign policy to address the trade imbalance and export slowdown. Measures to enhance the credit cycle through investment and savings, as well as promoting foreign investment, will help revive the economy from the current slowdown.
