Merchandise exports dip in July, after 17 months

The supply chain disruptions in the wake of the Ukraine war and the interest rate tightening by key central banks played their part, too.

Merchandise exports dip in July, after 17 months
Exports of petroleum products declined 7% on year in July to $5.8 billion; such exports had grown by 119% in June.

Merchandise exports in July dropped 0.8% from a year before, albeit on an unfavourable base, to $35.2 billion, the first monthly decline since February 2021 and compared with a 23.5% year-on-year jump recorded in June, showed the preliminary data released by the commerce ministry on Tuesday.

Imports, however, surged 43.6% in July to $66.3 billion, driving up the trade deficit to a fresh monthly peak of $31 billion. Sequentially, exports in July were down close to 12% from the June level.

Briefing reporters, commerce secretary BVR Subrahmanyam said the export curbs on a range of products in recent months — including elevated export duties on select steel products and iron ore, a windfall tax on petroleum products and restrictions on wheat exports—dragged down outbound despatches of goods. “These were necessary steps to rein in domestic inflation but these also contributed to the static exports in July,” he said. Without these steps, exports would have recorded decent growth in July, he added.

The supply chain disruptions in the wake of the Ukraine war and the interest rate tightening by key central banks played their part, too.

Importantly, exports of petroleum products declined 7% on year in July to $5.8 billion; such exports had grown by 119% in June. Sequentially, these exports crashed almost 33% July from the June level, reflecting the impact of the windfall tax that was introduced from July 1, the data showed.

Similarly, exports of iron ore crashed by 94% on year in July and those of iron & steel products dropped 2.5%. The government had on May 22 raised the export duty on iron ore to 50% from 30%. Similarly, an export duty of 45% was imposed on iron ore pellet, while that of 15% was slapped on select pig iron, flat-rolled products of iron or non-alloyed steel, bars and rods and various flat-rolled products of stainless steel.

Trade deficit in the first four months of this fiscal hit a record $100 billion. It will pressure the current account deficit (CAD), which is expected to be more than double to 3.1% of GDP in FY23, according to a Fitch estimate. Excluding petroleum and gems and jewellery imports, the deficit would have been just $37 billion until July this fiscal, Subrahmanyam said. However, given that goods exports have hit $156 billion in the first four months of this fiscal, they will likely hit as much as $500 billion in FY23, against $422 billion in FY22, the commerce secretary said.

He conceded that any potential demand slowdown in the US and the EU due to recession is a matter of concern. However, possible diversion of orders from Covid-hit China, the benefits of trade agreements with the UAE and Australia signed earlier this year and stepped-up efforts to diversify markets will more than make up for any potential shortfall in any market, the secretary said.

Interestingly, core imports (excluding petroleum and gems and jewellery) stood at only $38.44 billion, the secretary said.

But overall imports spiked due to a 70% jump in purchases of oil and petroleum products, 164% in coal and 47% in edible oil. Of course, a spurt in prices inflated petroleum and coal import bill substantially

Aditi Nayar, chief economist at ICRA, said the CAD is likely to have crossed $30 billion in the June quarter, a fallout of the higher commodity prices and equivalent of around 80% of the full year figure for FY22.

“Lower commodity prices should temper the trade deficit going ahead, although the strength of merchandise and services exports in the face of the global slowdown fears, remains crucial. Nevertheless, the sharp trade deficit in July does not augur well for the size of the current account deficit in Q2 FY23,” Nayar said.

A Sakthivel, president of the apex exporters’ body FIEO, said: “Signs of a likely slowdown in exports can been seen as global inventories are pretty high and the merchandise exports is facing the triple whammy: i) there is again a shift in consumption from goods to the services with opening up of economies after Covid-19 pandemic; ii) the inflation affecting all economies reducing the purchasing power and iii) many economies entering the recession while some advanced ones already in recession.”

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