India’s slowing exports

(MainsGS3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.)

Context:

• The global slowdown has begun to hit home, denting India’s goods exports by 16.65% in October compared to a year ago as the first contraction since February 2021 that dragged outbound shipments below $30 billion for the first time in 20 months.

Broad-based decline:

• The decline in exports was broad-based across sectors with just a handful of segments reporting an uptick in shipments, including electronic goods which grew almost 38% to $1.8 billion.
• Engineering goods, a mainstay of India’s exports in recent years, dropped over 21% to $7.4 billion, with the Ministry stating that the $2 billion drop ‘includes steel and its products’, signalling that the export tax on iron and steel is hurting these exports.
• Exports from major job-intensive sectors such as readymade garments and gems and jewellery dropped over 21%, while cotton yarn, handlooms and handicraft products nearly halved from a year ago.

Domestic demand:

• The monthly Finance Ministry review for October acknowledges a slowing export scenario but emphasises that domestic demand will carry through. 
• The report states that the global slowdown is driven by a ‘confluence of stubbornly high inflation, rising borrowing costs and geopolitical tensions’, but cites local demand as being ‘resilient’. 
• It also expects a ‘re-invigorated’ investment cycle which will spur growth and job creation in the coming days.

Positive signal:

• There seems to be a positive signal for the economy in the private sector capital expenditure which Chief Economic Adviser V. Anantha Nageswaran says it is on track to touch six lakh crore this fiscal which would make it the highest of the past six years. 
• Private capex typically depends on credit, or loans, from the banking system and that has seen a healthy growth in the recent past touching a high of 18% last month. 
• Whether this credit growth is due to inflation and low base effect from last year, remains to be seen over the coming months.

Conclusion:

• The pinch from slowing external demand is going to get more painful for the Indian economy in the months to come with a significant portion of India’s GDP shaved by widening of trade deficit in the subsequent quarters.