NEW DELHI: Improved demand coming in from the European Union, UK, West Asia and the US, which has given an order boost to exporters with over 10 per cent bookings, is widely expected to push exports into higher trajectory into the new fiscal FY25 even as a stubborn upside in trade deficit — accentuated by 7.7 per cent, month-on-month growth in imports during May 2024 at US$ 61.91 billion which pushed up the trade deficit for the month to US$ 23.78 billion – continues to worry trade experts, exporters and government stakeholders.
India’s merchandise exports in May 2024 registered 9.10 per cent year-on-year growth at USD 38.13 billion as compared to USD 34.95 billion in May 2023, majorly driven by petroleum products, engineering goods, electronic goods, drugs and pharmaceuticals, ready-made garments (RMG) of all textiles and plastic and linoleum. This is the second month in a row in the new financial year 2024-25 April, that merchandise export figures have posted an increase with outbound shipments in April growing over 1 per cent compared to USD 34.62 billion of April 2023. India’s total exports, combining merchandise and services, also grew estimatedly at USD 68.29 billion in May 2024, registering 10.25 per cent jump vis-à-vis May 2023.
On the cumulative front too, during the first two months of the new fiscal — April-May 2024 – merchandise exports were USD 73.12 billion as compared to USD 69.57 billion during April-May 2023. In April-May 2024, India’s total exports grew at USD 133.61 billion registering a positive growth of 9.21 per cent. Easwaran, Partner and Supply Chain Leader, Deloitte India shares the optimism on a positive outlook for global trade, which combined with India’s focus on FTAs and PLIs, is likely to see a boost in India’s merchandise exports.
Importantly, as President of FIEO Ashwani Kumar points out, all this comes amidst an ongoing Russia-Ukraine war coupled with various major geo-political tensions including the Red Sea crisis and Israel-Hamas conflict which have made the international trade scenario much tougher for the Indian exporters. “The goods exports of USD 38.13 billion with an impressive growth of 9 per cent compared to May 2023 is a good sign which shows the resilience of the exports.” says Kumar. “Trade is expected to broadly benefit from a positive global growth backdrop, even as service trade receipts flatline,” observes Radhika Rao, Executive Director and Senior Economist, DBS Bank.
Global trade is expected to improve in 2024, after contracting by three per cent in 2023, as per the United Nations Conference on Trade and Development (UNCTAD). The optimism for 2024 is on grounds of moderating global inflation and improving economic growth forecasts. Rising demand for environmental goods, particularly electric vehicles, is expected to boost trade in 2024. India’s exports in all our top 10 markets (US, UAE, Netherland, UK, China, Singapore, Saudi Arabia, Bangladesh, Germany and France) were positive and many of them recorded a healthy double-digit growth.
There are important takeaways from the May trade data on a sectoral basis. In May 2024, non-petroleum and non-gems and jewellery exports which includes gold, silver and precious metals increased 8.83 per cent to USD 28.60 billion from USD 26.27 billion in May 2023. On a cumulative basis as well, exports of gold, silver and precious metals in April-May 2024 increased to USD 54.71 billion, compared to USD 52.05 billion in April-May 2023. Petroleum products exports increase by 15.75 per cent to USD 6.78 billion in May 2024 from USD 5.85 billion in May 2023.
Engineering goods exports increased by 7.39 per cent to USD 9.99 billion in May 2024 from USD 9.3 billion in May 2023, which says EEPC India Chairman Arun Kumar Garodia, was
in line with his expectations. “Cumulatively, engineering exports during the April-May period of FY25 stands at USD18.65 billion as compared to USD 18.25 billion in the corresponding period of FY24 thus registering a positive growth of a little over 2 per cent,” says Garodia, crediting the upturn in shipments to improvement in the demand scenario in India’s key markets. “The global economic outlook is expected to improve in the ongoing fiscal and the exporting community remains optimistic. Softening price pressure and easing of interest rates in major advanced economies is set to spur demand.
The other performing sector is electronic goods the exports of which increased by 22.97 per cent to USD 2.97 billion in May 2024 from USD 2.41 billion and drugs and pharmaceuticals exports also increased by 10.45 per cent to USD 2.30 billion in May 2024 from USD 2.08 billion in May 2023. Other key drivers were RMG of all textiles exports which increased by 9.84 per cent to USD 1.36 billion in May 2024 from USD 1.24 billion in May 2023 as well as plastic and linoleum exports which increased by 16.6 per cent to USD 0.76 billion in May 2024 from USD 0.65 billion in May 2023.
Petroleum products exports too increased by 15.75 per cent to USD 6.78 billion in May 2024 from USD 5.85 billion in May 2023, but it is the jump in the net oil imports, which according to Aditi Nayar, Chief Economist, ICRA highlights the merchandise trade deficit. Merchandise imports during May 2024 were at USD 61.91 billion as compared to USD 57.48 billion in May 2023, taking the trade deficit to USD 23.8 billion. During April-May 2023, as well, merchandise imports were USD 116.01 billion compared to USD 106.54 billion, pushing up merchandise trade deficit during April-May 2024 at USD 42.89 billion compared to USD 36.97 billion during April-May 2023. “While exports growth rose to a robust 9.1 per cent in May 2024, and outpaced imports growth of 7.7 per cent, the merchandise trade deficit widened to a seven-month high US$D 3.8 billion in that month from USD 22.5 billion in May 2023, driven by a jump in the net oil imports,” says Aditi.
According to Nayar, in sequential terms, 71 per cent of the enlargement in the merchandise trade deficit in May 2024 relative to April 2024 was driven by the net oil balance, with a sharp rise in volumes amidst some cooling in prices. “With the merchandise trade deficit enlarging by USD 6 billion in April-May 2024 relative to the year-ago months, we expect the current account deficit to rise to 1.5 per cent of GDP in this quarter from 1.1 per cent of GDP in Q1 FY2024,” forecasts Nayar. However, in CRISIL view, moderation in domestic growth and resilience in exports, given the forecast of uptick in global trade volume this year over last, will keep the trade deficit and, hence, the CAD in check. Besides, CAD narrowed to 1.2 per cent of GDP in the third quarter of fiscal 2024 from 1.3% of GDP in the previous quarter , the CRISIL report points out.
Kumar is of the view that a negative trade balance is not always bad, if a country is importing raw materials or intermediary products to boost manufacturing and exports. Additionally, as Garodia points out, there are some FTAs in the pipeline that could materialise in the ongoing fiscal which will certainly give big boost to the engineering sector.” notes Garodia. Kumar, however calls for steps on the liquidity front with deeper interest subvention support and continuation of interest equalisation scheme. Besides, addressing the Middle East geopolitical situation, Red Sea crisis challenges by ensuring availability of marine insurance and rationale increase in freight charges.