Testing times

August’s foreign trade numbers are worrisome, yet hold some hope

India’s goods exports shrank for the seventh consecutive time and the ninth time in 11 months this August, while imports surged to hit the highest level since March this year. At $58.6 billion, inbound shipments were still 5.2% below last August’s levels, but exports fell by a relatively steeper 6.9%, leading to a $24.2 billion trade deficit — the widest since October 2022. Goods exports are now down 11.9% so far this year and imports have dropped 12.1%. Services exports for last month will be known later, but Commerce Ministry extrapolations suggest that this engine that has been resilient so far through the global economic turmoil, is also beginning to feel the heat. For now, the 0.4% drop expected in services exports in August is minor and with intangible imports also likely dropping at a sharper pace, this will not exacerbate the trade balance yet. However, shrinking services exports imply that their ability to bridge the goods trade deficits that were up sharply last year, will be restricted, thus raising the possibility of wider current account deficits from this quarter.

With global commodity prices rising around 12% from June levels to hit a 15-month high this month, the pressure on the goods trade deficit is likely to escalate, especially as oil and gems and jewellery imports have fallen less than their exports so far in 2023-24. In the first four months of this fiscal, about half the decline in outgoing shipments has been fuelled by petroleum despite volumes rising 6%, as prices fell 27%. This may change if global oil prices, which crossed $90 per barrel over the past week for the first time since November 2022, stay elevated. Export volumes of as many as 13 major items rose between April and July, but their value had declined owing to lower prices. That is a good omen about demand for Indian goods amid the gloom, and the government believes rising commodity prices will help trade tallies. But they could also be a double-edged sword for India as its strategic gambit to import more Russian oil has turned less lucrative. Moreover, sticky inflation could further dampen demand, especially in key markets such as the European Union, which just hiked interest rates to a record high. Inflation reheated in the United States last month, but not enough yet to dent festive demand that may lift order books in coming months. That engineering goods, which account for a quarter of India’s exports, clocked their first uptick after eight months in August, with half of the 14 key segments of exports growing — the best performance in nine months — is a welcome sign. India needs to do all it can to nurture precious green shoots and support exporters.