India’s exports to the US and the EU, its top two markets, climbed at a slower pace in June than in earlier months, while despatches to China, the fourth-largest destination, plunged 31% in June from a year before, according to the latest official data.
The decline in growth only accentuated in July, trade sources told FE. With fears of recession mounting in the US and the EU, and order flow from China faltering amid a Covid outbreak there, the slowdown in supplies to these economies may continue for a few months, the sources said. Moreover, concerns about a slowdown in Chinese demand flared up after Beijing announced a surprise rate cut this week. Indian exporters now pin hopes on an expected large order flow in the build-up to the Christmas season to turn the corner, said the sources.
According to the latest DGCIS data, growth in India’s exports to the EU eased from 61% in April to 40% in May and 39% in June (See chart). In the first quarter, exports to the 27-member bloc totalled $19.3 billion. The shipment to the US grew 29% in June, compared with 32% in May and 31% in April. The despatches to the largest economy stood at $21.7 billion in the first quarter.
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Exports to China, however, crashed 31% in the June quarter, almost at the same pace as in June, to $4.7 billion. India’s overall goods exports rose 27% in the June quarter to $121 billion.
The EU’s proposed rollback of duty relief for Indian exports totalling about $8 billion from January 2023 under the so-called Generalised Tariff Preference Scheme can potentially add to the woes, they said.
The US and the EU alone accounted for 33% of India’s record goods exports of $422 billion in FY22, as an industrial resurgence there in the aftermath of the Covid spurred demand for Indian merchandise. Any slowdown in these two economies, therefore, would hurt India’s exports prospects. Lower purchases by Covid-hit China, which made up 5% of Indian exports in FY22, will add to the woes.
Importantly, the slowdown precedes the government’s imposition of a windfall tax on petroleum product exports on July 1, a move that is expected to have contributed to a sharp drop in the export growth in July. Of course, the June data still reflected the move to curb despatches of certain steel products and iron ore through elevated export taxes in late May.