India’s growth story may be affected by slowing merchandise exports

The decline can partly be attributed to a higher base. Then the price effect came into play, aided by lower global oil and other commodity prices. The former actually has a sharp decline of 45% in oil exports, but note that non-oil exports are also falling. Furthermore, the decline in the non-oil export basket is largely broad-based, underscoring the fragility in the export story.

Despite India’s continued focus on increasing manufacturing exports, the segment has seen declines in both high- and low-skill categories. Exports of high-skill items such as engineering goods, and organic and inorganic chemicals, which account for about a third of total merchandise exports, fell in March. In addition, low-skill manufacturing exports such as readymade garments, plastic and leather products are also shrinking. The silver lining is electronics exports that continue to grow at a brisk pace, but that alone was not enough to drive headline export growth higher.

The export outlook also appears dim, amid concerns of weak global growth. In the past, India’s exports declined when global growth weakened, during the global financial crisis in CY09, and during the impact of the COVID-19 pandemic in CY20.

Last week, in the latest World Economic Outlook report, the IMF projected global GDP growth to decline to 2.8% in CY23 from 3.4% in CY22. Slow global growth is beginning to reflect on trade. According to the CPB World Trade Monitor, world trade volume is contracting from November to January after registering growth in the previous two years. India’s exports are not completely immune to the global trade slowdown and hence, the outlook is bleak.

Slower export growth certainly has consequences for external sector dynamism, but it has even bigger implications for overall economic momentum, given its contribution to more than 20% of India’s GDP. The saving grace is that a possible reduction in the country’s imports amid softening global commodity prices and robust growth in services sector exports could keep vulnerabilities at bay and keep the current account deficit low.

However, if export growth remains muted for a long time, it will be a drag on India’s growth story through its far-reaching implications for the country’s vital manufacturing sector.