A trade wave that wasn’t? What a 16.7% plunge in October export numbers mean – The Economic Times

Clipped from: https://economictimes.indiatimes.com/small-biz/trade/exports/insights/a-trade-wave-that-wasnt-what-a-16-7-plunge-in-october-export-numbers-mean/articleshow/96100819.cms

SynopsisAfter record highs that surpassed export targets in the previous financial year, exports plunged to a low of $29.8 billion in October. What does this mean for India’s exports, which had been on a steady upward trajectory until now?

After setting record highs in exports, India is now losing speed and is in danger of losing its hard-won lead. Does it signal the end of a good run for an economy that had managed to move past the $300-billion barrier in exports after almost a decade?

The situation demands scrutiny, as the country had achieved a record export target of $418 billion in FY22, but the outbound trade showed modest growth in the first six months of the current financial year. Signs of global demand weakening became more evident in October when exports sharply contracted by 16.7% year-on-year, the first contraction in 19 months. Exports in October 2022 were $29.78 billion against $35.73 billion in October 2021, reflecting the slowdown globally on account of inflationary pressures, mounting recession fears, currency fluctuations and geopolitical turmoil.

Experts point out that the world is facing multiple challenges at the same time. Also, these issues arose after the global economy went through a subdued period during Covid.

Ajay Sahai, DG & CEO, Federation of Indian Export Organisations (FIEO), describes the global situation as being volatile, and people’s purchasing power has come down. “The offtake has been low and countries have raised their interest rates as well. Moreover, the advantage that we had last time — when the prices of commodities were high, helping exports — does not exist now. That also affects the value of exports,” he says.


This sentiment is reflected in the WTO Goods Trade Barometer, a composite indicator for world trade. The latest reading, released on November 28, revealed that trade growth was likely to slow in the closing months of 2022 and would remain subdued in 2023. It attributed this to several shocks, including the Russia-Ukraine war, high energy prices, inflation and monetary tightening in major economies. The barometer showed a reading of 96.2, lower than the baseline value of 100 and indicative of slower trade growth ahead. “The barometer index was weighed down by negative readings in sub-indices representing export orders (91.7), air freight (93.3) and electronic components (91.0). Together, these suggest cooling business sentiment and weaker global import demand. The container shipping (99.3) and raw materials (97.6) indices finished slightly below trend and have lost momentum,” it stated.

‘Reasonable’ growth levels
Experts contend that the huge growth witnessed by most countries after the pandemic was due to the increased liquidity and pent-up demand that followed.

“There was a significant amount of liquidity in the EU and US owing to the largesse imparted to the economy,” says Atul Gupta, Partner, Deloitte India. “Such liquidity in the world market was bound to result in a lot of money chasing a limited amount of production. Now the scenario is vastly different with markets such as the EU, US and China getting riled by their own economic worries of inflation and consumption being hit. Growth parameters for major economies have gone down by almost half of what was previously projected.”

One of the major determinants of export performance is the demand and supply equation. Demand is creating the issue now, he says. “I don’t see this as a long-term trend. But we will get down to worldwide growth levels, which are reasonable. You can’t think of having a 6% growth in world output anymore, as was the case in 2021. A normal good year of world output is more like 4%. It is estimated at 3.2% in 2022 and 2.7% in 2023, according to the International Monetary Fund,” Gupta says.

In fact, the IMF’s World Economic Outlook in October had highlighted that this was the weakest growth profile since 2001, except for the global financial crisis and the acute phase of the Covid-19 pandemic. “The world’s three largest economies — China, the euro area, and the US — will slow significantly in 2022 and 2023, with downgrades compared with the predictions made in April and, in most cases, July,” it noted.


A look at the numbers in October shows that India’s exports have not been insulated from the impact of such developments in major economies. According to the Press Information Bureau, some of the commodity groups exhibiting negative growth in the month included iron ore, gems & jewellery, engineering goods, spices, carpets and ceramic products.

Though a lot of products did not do well, the numbers in labour-intensive products are a cause of concern. The President of FIEO, A Sakthivel, lists the export decline in engineering goods, apparels and textiles, gems & jewellery, petroleum, organic & inorganic chemicals, drugs & pharmaceuticals, marine products, leather & leather products, and agri-product sectors as of particular concern. “These sectors are key to huge employment generation. At the same time, the growth in exports of electronic goods on a sustained basis is a good sign, besides the growth in exports of some agri product sectors such as oilseeds, oil meals, tobacco, tea and rice,” he adds.

Another reason why a fall in exports should be more worrisome than earlier is that outbound trade has a larger say in the economy’s growth now. In 2017-18, exports of goods and services contributed to 18.8% of GDP. The 2021-22 provisional estimates peg that number at 21.4% of GDP.

Challenging times
While iron ore showed a steep export decline of 90%, according to official data, handicrafts, excluding handmade carpets, reflected a fall of over 50%; cashews saw a drop of around 41%.

This implies more challenging times are in store for the MSME sector, which contributes 40% to the country’s exports. Incidentally, even the rupee depreciation against the US dollar did not have a positive impact on MSMEs as anticipated because of global trade growth slowing and the high inflation this year spoiling business, household and government calculations.

The last two years have been particularly hard for small and medium enterprises, with the virus outbreak posing a severe threat to their survival. Many MSME units either shut down or faced extreme losses during that period. Their woes were further compounded with the Russia-Ukraine war slowing global demand and disrupting supply chains.

Now, with a host of factors contributing to a slower growth in trade, such enterprises would have to traverse a period unheard of in modern economic history.

“The main challenge for MSME exporters is demand. But it is beyond their control,” says Nisschal Jaain, CEO and Founder at Shypmax, a cross-border logistics platform. “The next 12-14 months will be crucial. Cutting costs wherever possible and having a strong supply chain in place can help them steer ahead in this time.”

What to expect
However, despite the global headwinds, industry experts are optimistic that exports will maintain a slow and steady momentum. “I don’t see us missing the target by any huge margin,” says Gupta of Deloitte India.



Labour intensive sectors like textiles have seen major contraction in exports.

Sahai of FIEO estimates exports will touch $450 billion in FY23 against the previous target of $470 billion. “According to the current trend, this seems to be the case. But the global situation seems to be quite volatile. It is important to review our targets at every step,” he adds.

The exports body had suggested companies adopt more aggressive marketing measures during this time to stay visible and have a fighting chance. SME exporters in most developing and developed countries get government support for marketing exposure. “In India, even though such support is provided, the support given under Market Development Assistance (MDA) Scheme with total allocation of less than Rs 200 crore for promoting exports to $460-470 billion is just a drop in the ocean. There is a need for creation of an Export Development Fund with a corpus of minimum 0.5% of preceding year’s exports,” it had stated at the pre-budget meeting with FM Nirmala Sitharaman in November.

Others are of the view that exporters should reach out to the government seeking clarity over export incentive schemes that can offer a leg up to the sector. “In addition,” says Krishan Arora, Partner, Grant Thornton Bharat, “appropriate representations should be made seeking the limited intervention of the authorities in day-to-day matters for exporters under SEZ and MOOWR (Manufacturing & Other Operation in Warehouse Regulation) schemes. Further, the government should also consider extending the PLI scheme to various other sectors to boost manufacturing, ultimately leading to an increase in exports.”

While it is undoubtedly a time of uncertainty, what remains to be seen is whether this would be a long-term trend or just a cyclical one. Gupta labels it more as a reaction to the unsurpassed growth levels seen after the pandemic. “I don’t see the recession lasting long. It seems that the worst in terms of inflation is tending to get out. If that happens, it would be a healthy sign for exports to pick up,” he says, bullish on the road to recovery in FY 24.

(Edited by Ram Mohan. Illustrations by Sadhana Saxena)
(Originally published on Dec 09, 2022, 09:56 AM IST)

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