Lower receipts from processed petroleum exports and dragged down depressed global crude prices led to exports in October contracting for a third straight month.
The decline in exports stood at 1.1 per cent in October, lower than the 6.57 per cent fall in September. Outbound trade has contracted four of the first-seven months of the 2019-20 fiscal year. In the current financial year till October, cumulative exports stood at $ 186 billion, 2.2 per cent lower than the corresponding period in the last financial year. However, officials stressed that major sectors such as gems and jewellery, and engineering goods returning to growth signal favorable times for exports are around the corner.
Nonetheless, officials remain worried about falling imports, which contracted in October by the highest margin in FY20. Imports shrank by 16.4 per cent in October, higher than September's 13.85 per cent contraction. Inbound goods have contracted for the previous five consecutive months, showing low demand for both consumer and industrial items — a hallmark of slowdown. India imported $ 306 billion worth of goods during the April-October period, 8.37 per cent lower than imports in the corresponding period of the last year.
As a result, merchandise trade deficit remained relatively low at $11 billion after the $10.86-billion deficit in September, a seven-month low. Cumulative trade deficit reached $94 billion till October. The sharp slide in the merchandise trade deficit in October 2019 relative to October 2018 was primarily driven by a considerable reduction in imports of petroleum products, led by both prices and volumes, as well as various industrial inputs, and some consumer items,” said Aditi Nayar, principal economist at ICRA.
According to the data released by the commerce and industry ministry on Friday, exports stood at $26.03 billion
in the latest month. An unprecedented 18 of the 30 major export sectors saw contraction, down from 22 in September. Critical exports such as those of processed petroleum continued to take a beating, with receipts falling by 14.6 per cent in October to $3.62 billion. Petroleum exports had fallen by more than 18 per cent in September.
For gems and jewellery, the slowdown that had gripped the sector periodically since November gave way to rare growth in October, with exports rising by 6 per cent in October to $3.7 billion. The sector had contracted by 5.56 per cent in September with experts blaming the availability of trade credit after the Nirav Modi scam.
Engineering exports, on the other hand, managed to rise by 1.2 per cent in October, breaking a long spell of contraction, which had last seen shipments shrink by 6.2 per cent in September and 9.35 per cent in August. The sector accounts for 25 per cent of the forex earned. “The pace of de-growth for October has come down but overall, the picture remains challenging,” Engineering Export Promotion Council Chairman Ravi Sehgal said.
Elsewhere, contraction continued. Export of readymade garments, in which India's export competitiveness has fallen over the past fiscal year, contracted by 2.1 per cent in October. The sector had shown signs of steady recovery in July, with 7.66 per cent growth but contraction has continued ever since.
Exports of non-oil and non-gems and jewellery products rose after months, rising a marginal 0.6 per cent to $ 19 billion. The de-growth in the sector had been receding steadily over the past four months and contraction had stood at 4.2 per cent in September, down from 5.61 per cent in August. “Sluggishness in economies worldwide, coupled with the trade war between US and China, Brexit, and developments in Iran, Turkey, and Iraq other gulf countries, has escalated the problem. The downside risks still remain,” said Sharad Kumar Saraf, president of the Federation of Indian Export Organisations. Service exports, however, continued growth streak, rising by 7 per cent in September to earn $17.04 billion in September, taking total earnings in the current fiscal year to $107 billion. Earnings had grown by 10 per cent in August.
The largest component of the import bill - crude oil - saw the cost of inbound shipments fall by 32 per cent to $9.6 billion, as compared to $8.9 billion in September. Crude oil imports had shown significant reduction in value terms throughout FY20 with global prices tanking.
On the other hand, the second-largest item in the import bill - gold - continued to fall, albeit by smaller margins. Incoming gold shipments narrowed by a moderate 4.7 per cent after massive drops of 50 per cent, 62 per cent, and 42 per cent in the past three months. Imports of the precious metal had continued to see an uptick in early 2019 before crashing since June, even as the industry had continued to see volatility.
Non-oil and non-gold imports — a sign of domestic industrial demand — fell for a 12th straight month in October, contracting by 10 per cent, higher than September's 8.88 per cent. Experts said they expect the current account deficit to halve to $8-9 billion in the second quarter (Q2) of FY20 now, as lower-than-anticipated trade deficits become the norm.