Trade data shows global impact as FTAs in focus

India’s merchandise exports in August dipped marginally at $33 billion as compared to $33.38 billion in the same month a year ago mainly because of global headwinds, including the Chinese slowdown, according to official data.

India’s merchandise exports in August dipped marginally at $33 billion as compared to $33.38 billion in the same month a year ago mainly because of global headwinds, including the Chinese slowdown, according to official data.

HT Image

The government, however, is confident of achieving record $750 billion goods and services exports in FY23 as it plans several policy measures under the New Trade Policy expected by the end of this month.

India’s merchandise import in August 2022 was $61.68 billion, an increase of 36.78% over $45.09 billion in the corresponding month of 2021. Experts expressed concerns about rising imports in comparison to exports, which had been a drag on the country’s gross domestic product (GDP) in the first quarter of the current financial year.

EY India chief policy adviser DK Srivastava said: “The contribution of net exports to real GDP growth is negative at (-)6.2% points in 1QFY23 since import growth continues to exceed export growth by a tangible margin.” India’s GDP grew at 13.5% in Q1 FY23, lower than the 16.2% forecast by the Reserve Bank of India (RBI).

Expressing confidence in India’s resilient economy, he said exports growth is not off-track and according to conservative estimates, the country can achieve exports of $300 billion services and $450 billion goods by March 31, 2023. He said India’s free trade agreements (FTAs), forthcoming New Trade Policy, and the government’s Aatmanirbhar Bharat Abhiyan (Self-reliant India initiative) would aid this target.

“India’s exports are holding ground” compared to other global economies, with a 17.1% merchandise exports growth in the first five months of current financial year at $192.59 billion and robust services exports at $95 billion in April-July 2022 registering 25% growth, he said. With that kind of cumulative growth “we are not in a very uncomfortable situation”, he added.

Subrahmanyam said exports restrictions on several commodities to tame the country’s inflation and a slowdown in the Chinese economy, which is one of the largest trading partners of India, has adversely impacted exports growth. According to official data, India’s exports to China fell by about 35.6% to $6.8 billion in April-August 2022 compared to $10.5 billion in the same period previous year. India’s imports from China, however, surged by 28% in the first five months of 2022-23 at $43.90 billion.

India’s high imports are mainly due to the country’s dependence on petroleum products, edible oil and other commodities that have seen a spike in their rates in the international market, the commerce secretary said. India, which imports 85% of crude oil it processes, saw its daily average import cost at $102.04 a barrel on August 30, an 11.58% jump since August 17 ($91.45). In April-July 2022, India imported crude oil worth $64.17 billion.

Subrahmanyam said Chinese slowdown is also an opportunity as India is the world’s fastest growing country, which has surpassed the United Kingdom, and many global economies are now relying on New Delhi for assured supply of goods and services. “Several countries are eager to have trade ties with India and recent FTAs are efforts in that direction,” he said. While the FTA with the United Arab Emirates (UAE) is already operationalised, the FTA with Australia is expected to be operationalised by November, another government said, asking not to be named.

The commerce secretary said India’s FTA with the United Kingdom is “on the last stage” as “our fingers are touching” and a meeting is expected in the last week of the month so that the deal can be closed by Diwali. While an FTA with Canada is also on the fast track and expected to be concluded by December this year, and the trade agreement with the European Union (EU) is expected in June-July, he said.

“Global headwinds are having their impact on our exports… The demand for low value goods is increasing which may help the employment intensive sectors though per unit realisation may come down,” said Ajay Sahai, director general and chief executive of the Federation of Indian Export Organisations (FIEO), an industry body.

Some of the sectors that saw a dip in exports are cotton yarns, fabrics, made-ups where exports have declined by 32%. Iron-ore exports have declined by 90%. Handicrafts declined by 36%. “However, the drop in exports in cotton yarn and iron ore has contributed to meeting the domestic demands and has helped domestic manufacturing,” a commerce ministry official said.

FIEO president A Sakthivel said: “The benefits of the newly signed FTAs and the PLI [productivity-linked incentive under Aatmanirbhar Bharat] scheme will further help us in building as we continue to move ahead during the fiscal.” He, however, cautioned about China. “The slowdown in major economies across the world, including China, will further affect the overall forecast for the global growth process,” he said.