Exports in September contracted for the third time in the first six months of the current fiscal year, with trade decline plaguing all major foreign exchange (forex) earners such as processed crude oil, gems and jewellery, and engineering goods.
Outbound trade dropped 6.57 per cent in September, falling to a three-month low. However, policymakers are equally worried about falling imports, which contracted for the fourth straight month in September by 13.85 per cent, showing low demand for both consumer and industrial items — a hallmark of slowdown. As a result, merchandise trade deficit fell to $10.86 billion in September, a seven-month low.
“The softening of commodity prices, including crude oil, US-China trade war, Brexit, and developments in Iran, Turkey, and other Gulf nations has further aggravated the problem of the world economy. The uncertainty attached has also affected the flow of investment and added to the currency volatility,” said Sharad Kumar Saraf, president of the Federation of Indian Export Organisations.
Outbound trade had been repeatedly pummelled in 2019-20 (FY20), with a 6.05 per cent contraction in August. This still trailed the 41-month low of 9.7 per cent in June. According to the data released by the commerce and industry ministry on Tuesday, exports stood at $26.03 billion in the latest month.
An unprecedented 22 out of the 30 major export sectors saw contraction, while in August, only seven sectors had contracted. Critical exports such as those of processed petroleum took a beating, with receipts falling by more than 18 per cent to $3.4 billion.
The contraction was by a higher margin than that of August’s 10 per cent. The fall in oil exports has accelerated since July, with major refineries in Jamnagar and Mangaluru staying shut. Recently, senior government officials had said they expected exports in the sector to go up soon.
For gems and jewellery, the severe slowdown that had gripped the sector periodically since November continued in September, when the sector contracted by 5.56 per cent to ship out $3.58 billion worth of goods. Exports of gems went down 3.54 per cent in July. The pace of exports has been hit in the sector, as fund availability dried up in the aftermath of the Nirav Modi scam.
After being one of the growth drivers in the previous fiscal year, engineering goods also continued to fare badly. It fell by 6.2 per cent in the latest month, down from August’s 9.35 per cent contraction. The sector accounted for nearly 25 per cent of the forex earned. “We need to fix issues like high raw material cost, mainly of steel,” Engineering Exports Promotion Council Chairman Ravi Sehgal said.
Export of readymade garments, in which India’s export competitiveness has fallen over the past fiscal year, contracted by 2.17 per cent in August. The sector had shown signs of steady recovery in July, with 7.66 per cent growth.
Exports of non-oil and non-gems and jewellery products declined by 4.2 percent in September, albeit a lower fall than the 5.61 per cent degrowth in August.
The largest component of the import bill — crude oil — saw the cost of inbound shipments fall by 18 per cent to $8.97 billion in September. Crude oil imports had gone down by 9 per cent in the previous month, following a massive fall of 22 per cent in July.
On the other hand, the second-largest item in the import bill — gold — continued to fall by big margins. Incoming gold shipments narrowed by a massive 50 per cent, after 62 per cent and 42 per cent contractions in August and July. Imports of the metal had continued to see an uptick in early 2019 before crashing since June, even as the industry had continued to see volatility.
“The continued degrowth in gold imports reflects the spike in the price of the precious metal, which has contributed to the contraction in imports of precious and semi-precious stones as well. Such imports may revive to some extent in the third quarter of FY20, on account of the festive and wedding season,” Aditi Nayar, principal economist at ICRA, said.
Non-oil, non-gold imports — a sign of domestic industrial demand — fell for the 11th straight month in September, contracting by 8.88 per cent, similar to August’s 9 per cent.
Following the lower-than-anticipated trade deficit for September 2019, we now expect the current account deficit to halve to $8-9 billion in the second quarter (Q2) of FY20, from around $19 billion in Q2 of 2018-19, driven by moderate crude oil prices, subdued gold imports, and sluggish domestic demand.