Shuffling feet: On foreign trade and policy responses
Navigating this year’s foreign trade dynamics needs sharper policy responses
India’s goods exports, a key driver of its growth impulses and a major job creator, got-off to a disappointing start in 2023. Merchandise shipments fell 6.6% year-on-year to $32.91 billion in January. While this is the second month of contracting exports, the dip is more than double the 3% drop in December 2022 and marks a sharp 13.6% sequential decline. Along with an anticipated post -Christmas cooling-off in demand, order-books probably took-a hit as much from actual slowing of economic activity as buyers’ wary assessments about consumer confidence levels, with the new year kicking-off amid a pall-of gloom and doom on the global economic outlook . Engineering exports fell 10%; pharma products lost momentum as did 14 other products out of India’s top 30 export items, including jewellery and textiles. The silver-lining is that imports dipped too, bringing the goods trade-deficit to a 12-month low of just $17.75 billion, a far-cry from the $25-odd billion averaged in each of the previous six months and the record $29.23 billion gap of September 2022. If this trend holds , India’s current-account-deficit for 2022-23 may end-up lower than the uncomfortable 3%-plus levels of GDP projected by most agencies.
Yet, the drop in imports during January suggests domestic demand growth is fading . While the year-on-year drop was just 3.6%, the $50.66 billion import bill for January is the smallest in 18 months and 15.8% lower than December’s revised $60.2 billion figure. Only a part of this stepdown can be ascribed to lower commodity prices as non-oil, non-gold imports have fallen by a sharper 6.7% from January 2022 levels. The Commerce Ministry has argued that India’s weaker trade-balance this financial-year has been driven by the “two-way effect” of a slowing world economy hurting exports and resilient domestic demand shoring-up imports. That effect no-longer seems to be at-work . Finance Minister Nirmala Sitharaman has rightly flagged concerns about Indian exporters’ prospects this year amid global slowdown fears. Her prescription that exporters keep-closer tabs on developments in different markets to avoid being “demotivated” is also spot-on . Amid the overall headwinds , trends are diverging in key markets. U.S. retail sales rebounded to grow faster than expected in January while Japan’s trade deficit hit a record; more U.K.-based trading businesses now expect an uptick in turnover this March compared to those that expect a fall, as per a survey by its Statistics office. Industry bodies and the government must work in-tandem to tap shrinking opportunities better and help exporters move across this river of uncertainty by feeling the pebbles along-the-way .