Recent numbers show FY24 doesn't bode well for India's merchandise exports

No reversal seen in the recent contraction or growth deceleration, with WTO projecting goods trade growth by volume to slow to 1.7% in calendar year 2023 from 2.7% in 2022

India has much to worry about as far as the outlook of its merchandise exports for the financial year 2023-24 is concerned. The contraction in exports in recent months or at least deceleration of growth (value-wise in dollars) for the whole of FY23 may not reverse as the World Trade Organization has projected goods trade growth to slow to 1.7 per cent by volume in calendar year 2023, from 2.7 per cent in 2022.

Though up from one per cent estimated earlier, the growth would nonetheless be lower in 2023 than in 2022.

WTO says imports by two of India's top destinations-- North America and Europe-- are set to decline in 2023. While North America imports would decline by 0.1 per cent in 2023, against a growth of six per cent in the previous year, shipments to Europe would dip by 0.6 per cent, compared to a six per cent growth over this period in the previous year.

North America and Europe have been accounting for 38-41 per cent in India's exports in recent years. In 2022-23, this number stood at 41.18 per cent.

It should be noted that the WTO talked about volume trade, not value trade. Value would depend on prices of goods at that point of time and the exchange rate. However, a broad conclusion could be made that value-wise too, merchandise exports may not grow much, if at all, in FY24. This conclusion is buttressed by the fact that goods exports from India declined in the first three months of the current calendar year (in dollar terms). The first quarter of calendar 2023, the year which the WTO forecast a slowdown in world trade growth by volume, is nothing but the last quarter of financial year FY23.

Each month of this quarter showed contraction in merchandise export growth (in dollar terms), indicating a trend in the months ahead. For instance, exports dipped almost 14 per cent to $38.38 billion YoY in March 2023, nine per cent to $33.88 billion in February and 6.6 per cent to $32.91 per cent in January. However, exports were up six per cent to $447.46 billion for the April-March period, due to growth in earlier months.

"Weak global demand has already started reflecting on Indian export growth. Most of the commodity groups have witnessed a decline. Decline in process has been one of the major reasons for the dip in exports in the last few months," said India Ratings chief economist Devendra Pant.  

He added that the FY24 export outlook appears weak due to a combination of price decline and dip in volume growth, stemming from weaker economic prospects of India's major export destinations such as the US and Europe.

"We expect exports in FY24 to grow around 1-2 per cent," Pant said.

Madan Sabnavis, chief economist at Bank of Baroda, said growth in exports may be expected to slow down further with global slowdown.

"(It) can still be positive at around five per cent. The advantage of a weaker currency will also not be there this time," he said.

The average monthly value of the rupee against the dollar declined almost eight per cent to 80.29 in 2022-23 from 74.49 in the previous year.

Anil Sood, a professor and a co-founder of the Institute for Advanced Studies in Complex Choices, said the global trade volume and value have always been very volatile, even for large competitive exporters like China. Therefore, the Indian exports too are subject to volatility arising from economic conditions in partner countries.

"For example, we saw a large fall in two-wheeler exports last year, as many emerging economies were struggling to grow and manage their current account imbalances. If global industrial activity does slow down as expected, we would see a decline in industrial intermediates and metal exports too," he said.

Petroleum products, which constitute a large share of Indian exports, are sensitive to geo-political and economic conditions, while gems and jewellery exports vary with consumer sentiments as well as economic conditions, Sood said.

However, India is likely to continue benefiting from a higher share of electronics trade as the production linked incentive (PLI) scheme and other schemes gain traction, he said.

The share of petroleum products in total merchandise exports stood at over 21 per cent in 2022-23, while that of gems and jewellery was at about 8.5 per cent. However, electronics accounted for just five per cent of total merchandise exports in the year.

He said the inventory requirements of importing partners may also impact India's exports.

"Given that the supply chain disruptions are getting resolved, the importing partners would need smaller inventory to meet their sales and production requirements. In short, we can expect a slowdown in export volumes from India during the coming year. But the degree of slowdown would depend not only on the level of economic activity but also on consumer and business sentiment," Sood said.