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Drop in core exports, import growth stoke fresh demand concerns

According to the preliminary data released by the commerce ministry late on Monday night, overall merchandise exports dropped 3.5% in September, the first monthly decline since November 2021, to $32.6 billion. (IE)

Drop in core exports, import growth stoke fresh demand concerns
The sharp fall in import growth, some analysts said, might have been caused by a combination of factors, in addition to the role played by a decline in global commodity prices and the rupee depreciation. (IE)

Core goods exports (excluding the petroleum, gems and jewellery segments) shrank 9.8% in September from a year before to $22.9 billion, the worst monthly slide since May 2020. It reflects the impact of easing global commodity prices and softer demand for merchandise from recession-hit advanced markets, economists told FE.

The core exports, which reflect the economy’s competitiveness in external trade as they exclude volatile segments, had recorded a 1.6% fall on year in August. However, such exports had grown 1.6% in July, 8.7% in June, 8.6% in May and 19.9% in April, according to the commerce ministry releases.

According to the preliminary data released by the commerce ministry late on Monday night, overall merchandise exports dropped 3.5% in September, the first monthly decline since November 2021, to $32.6 billion.

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Importantly, imports, having grown at a scorching pace earlier this fiscal, recorded just a 5.4% rise in September to $59.4 billion—the growth was as high as 62.8% in May. In fact, imports dropped below the $60-billion mark for the first time in seven months in September and are unlikely to shoot up substantially in the coming months.

Aditi Nayar, chief economist at ICRA, said: “Lower commodity prices and the flagging global demand have contributed to the softer import growth and dip in non-oil exports in September.”

India Ratings chief economist DK Pant said, “Trade growth responds more to demand than the exchange rate. Although share of consumption goods in India’s import has increased, it is still dominated by raw material and intermediate goods.” The import growth slowdown in September is due to some correction in commodity prices, weakness in domestic demand and currency depreciation making imports costlier, he added.

As for the drop in non-petroleum and non-gems and jewellery exports, it’s caused by weak global demand. Moreover, while the rupee has depreciated vis-a-vis dollar, currencies of our competitors have depreciated more than rupee. “However, it is weak global demand which has higher impact on our exports,” Pant said.

Import slowdown: Factors beyond commodity price drop

The sharp fall in import growth, some analysts said, might have been caused by a combination of factors, in addition to the role played by a decline in global commodity prices and the rupee depreciation. Revenge spending, which had contributed to the import surge after the Omicron spread waned, might be losing momentum. Even the broader domestic consumption may be showing some signs of a slowdown in the build-up to the peak festival season.

Moreover, companies, which had front-loaded imports of raw materials earlier this fiscal, might be cutting down on the pace of purchases. Similarly, some import-sensitive export sectors—including petroleum—may have scaled down purchases in light of a slowdown in demand from large markets such as the US and the EU.

Interestingly, imports of oil and oil products dropped 7% in September from a year before (these grew as much as 87.4% in August), partly due to the drop in international prices. Purchases of electronics dropped marginally from a year earlier (this segment grew 23.3% in August). Imports coal jumped 56.9% in September, against 133.6% in the previous month, while those of vegetable oil, too, eased slightly, against a rise of 41.6% in August.

However, the slowdown in import growth, if it persists, will substantially ease concerns of massive trade deficit in the coming months. This, in turn, will exert less pressure on the current account deficit (CAD), which had hit a 15-month high of 2.8% of GDP in the June quarter and is expected to have only worsened in the September quarter.

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