In February, India’s exports of products decreased for the third time in five months. The $33.8 billion in shipments represented an 8.8% decrease from the prior year. The only greater decrease in recent periods of normally brisk export growth was noted in October 2022. February’s dip was driven by a significant 29% decline in oil exports, a 12% decline in chemical shipments, and a 10% decline in engineering products exports, which together made up over half of India’s merchandise exports.
Yet the impact of weakening international demand extended further, causing 13 more of India’s top 30 exports to decline. The exports for February are still 7.3% higher than those for October, but the short-term forecast has returned to the doom and gloom of the fourth quarter of 2022 over the possibility of a global recession.
The world economy may just end up averting the worst that was anticipated in 2023, according to recent resilient economic statistics from important economies. Yet for the time being, the Ides of March dashed such dreams.
Retail sales in the United States, India’s top export market, increased by 3% in January as a pleasant surprise but decreased in February. This trend may not reverse anytime soon, according to the bankruptcies of two American banks and the exposure of weaknesses by European banking Credit Suisse during the U.S. Federal Reserve’s struggle to control inflation.
After the surprisingly mild start to the year, recession concerns have undoubtedly returned as seen by the Wednesday decrease in the price of Brent oil. A protracted period of declining shipments might result in factory job losses and hurt demand given that manufacturing has already shrunk for the past two quarters.
As it stands, the 8.2% decline in imports in February—the worst in a three-month contractionary run and the lowest import bill in over a year ($51.3 billion)—does not bode well for domestic demand, which is intended to protect the economy from external shocks. Prices rather than volume-related variables may be partly to blame for this (oil and edible oil prices had zoomed after the Ukraine war).
In light of decreased exports, the government is attempting to reduce non-essential imports. But, this is a challenging area where elements like quality, cost, and supply chain connections also important, and errors might limit customer (and investor) choice.
The policy space may be better employed to help exporters explore new markets and respond more swiftly to rapidly altering dynamics in important markets as the deficit has already shrunk significantly throughout January and February from the record $29.2 billion level achieved last September. At all costs, the protracted revision of the 2015–20 foreign trade policy must be completed.