India faces trade challenges on weakening global demand

MUMBAI (ICIS)–India’s industries face growing challenges in the second half of its current fiscal year ending March 2023 amid continued weakness in global demand for goods combined with the rupee’s plunge.

• Fiscal H1 trade deficit nearly doubles on year to $148.5bn
• September fertilizer imports up 48%; coal imports up 61%
• Rupee trades at above Rs80 versus US dollar

The global geopolitical situation needs to improve drastically, Federation of Indian Export Organisations (FIEO) president A Sakthivel said over the weekend, following the release of India’s September 2022 trade data, which showed exports growing at a single-digit pace for the third consecutive month.

Key sectors such as engineering goods, ready-made garments, and plastics and linoleum reported a year-on year decline in exports as demand slowed across major markets, including the US and EU.

“The slowdown in exports is a reflection of the toughening conditions of the global trade which is facing demand slowdown on account of high inventories, rising inflation, economies entering recession, high volatility in currencies and geopolitical tensions,” Sakthivel said.

The Indian government’s attempts to stem domestic inflation by placing restrictions on exports of some goods may have also affected the growth numbers, he added.

India posted a trade deficit of $25.7bn in September, up 14.4% from the previous corresponding period, the Ministry of Commerce and Industry announced on 14 October.

September merchandise exports rose 4.8% year on year to $35.5bn indicating continued weakness in global demand, with imports posting a faster growth of 8.7% to $61.16bn.

The increase in imports in September has slowed, coming from strong double-digit growths since April, as commodities prices have started coming off on global recession fears and significant strengthening of the US dollar.

In April-September 2022, the first six months of India’s current fiscal year, the trade deficit nearly doubled to $148.5bn from $76.3bn in the previous corresponding period.

Total merchandise exports for the period were up nearly 17.0% year on year at $231.88bn, while imports increased at a stronger pace of 38.6% to $380.34bn.

In September alone, exports of petroleum products rose by 43% year on year to $7.43bn, while organic and inorganic chemical shipments showed a growth of around 3% to $2.44bn.

Shipments of drugs and pharmaceutical during the month increased by 6.9% year on year to $2.19bn, while those of manmade fabrics and yarn declined by 12.0% to $400m. Plastics exports fell by 12.2% to $660m.

Imports of crude petroleum and products in September shrunk 5.4% year on year to $15.9bn.

Fertilizer imports, meanwhile, surged 48.3% to around $1.80bn, while imports of organic and inorganic chemicals showed a marginal increase of 0.4% to $2.49bn.

India’s imports of artificial resins and plastic materials were up 11.6% at $1.84bn in September, while those of coal surged 60.8% to $3.5bn

“Despite this year’s projected growth rate of 7% for the Indian economy, we remain concerned about the global economic outlook and geopolitical environment,” Indian finance minister Nirmala Sitharaman said in a tweet on 15 October.

The World Trade Organization (WTO) estimated global trade growth to slow to 1% in 2023 from 3.5% in 2022 amid elevated global uncertainties.

The Indian government is keeping a close watch on the growing trade deficit, Sitharaman said during an official visit to the US.

“Trade deficit is growing across the board, meaning we are importing a lot more than exporting. And the net is definitely going against us,” Sitharaman said.

“If you look at it, the kind of imports that are happening are very essential, also for our industrial activity and for our value addition for exports purposes”, she added.

The Indian government expects India’s merchandise exports to touch $470bn in fiscal year 2022-23, from $422bn in the previous fiscal year.

The Indian rupee (Rs) plunged to an all-time low of Rs82.85 against the US dollar on 10 October, shedding some 8% since January due to high crude oil prices, widening trade deficit and the aggressive interest rate hikes by the US Federal Reserve to control inflation.

India’s domestic economic data was also showing a weakening trend, which has exerted further pressure on the rupee.

Retail inflation in September touched a five-month high of 7.4%, up from 7% in August, driven mainly by a spike in food inflation which has jumped to a 22-month high of 8.6%, official data showed.

Separately, India’s Index of Industrial Production contracted 0.8% in August, marking its weakest performance in 17 months.

Focus article by Priya Jestin

Thumbnail image: An Indian vendor counts Indian rupees notes at a roadside shop in Mumbai, India, 26 September 2022. (By DIVYAKANT SOLANKI/EPA-EFE/Shutterstock)

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