India’s trade significantly impacted by global headwinds

In May 2023, India’s overall exports are estimated to be US$ 60.29 billion while imports are estimated to be US$ 70.64 billion, exhibiting a negative Y-oY growth. However, 13 of the 30 key sectors exhibited positive growth despite global uncertainties. 

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According to the recently released trade data for FY23 on June 15, India’s overall exports in April-May 2023 are estimated to exhibit a negative Y-o-Y growth of 5.48%. Imports are also estimated to exhibit a negative Y-o-Y growth of 9.63%.

Merchandise exports: In May 2023, India’s goods exports stood at US$ 34.98 billion, marking a 10.30% decline compared to the previous year. The downward trend indicates a significant slowdown in global demand. The decline can be attributed to reduced commodity prices and a decrease in the demand for gems, jewellery and readymade garments in Europe and the US.

Overall, imports in May decreased by 6.59% to US$ 57.10 billion, compared to US$ 61.13 billion in May 2022. The reduction in imports can be attributed to weak demand and decreased discretionary spending in Europe and the US.

Services exports: Services exports in May were estimated to have reached US$ 25.30 billion, while imports reached US$ 13.53 billion. The growth in services exports can be attributed to sectors such as IT services, software development, and business process outsourcing, which showcased resilience despite global economic challenges.

During April-May 2023, India’s trade deficit significantly widens. The overall trade deficit for this period is estimated to be US$ 13.28 billion, registering a decline of 35.41% compared to the deficit of US$ 20.56 billion last year. In terms of merchandise trade, the deficit for April-May 2023 was US$ 37.26 billion, showing a decline of 7.95% compared to the deficit of US$ 40.48 billion during April-May 2022.

Sector Overview

Under merchandise exports, 13 of the 30 key sectors exhibited positive growth in May 2023 as compared to the same period last year in May 2022.

• Exports of Electronic goods grew by 73.96% during May 2023 at US$ 2.42 billion as compared to US$ 1.39 billion in May 2022.
• During April-May 2023, electronic goods exports were recorded at US$ 4.54 billion as compared to US$ 3.06 billion during April-May 2022, registering a growth of 48.06 per cent.
• Enabling policies facilitating greater investment in electronics, mobile manufacturing, pharmaceuticals, etc. has resulted in visible growth in these sectors.
• The effect of duty withdrawal on Iron Ore is visible on India’s exports of the item which have exhibited positive growth of 48.26% during May 2023 over the same month in 2022.
• Textiles, Plastic & Linoleum exports continued to decline in May 2023 because of subdued demand due to recessionary effects in major economies.

Trade Comparison between April & May 2023

The exports decreased from US$ 65.02 billion in April 2023 to US$ 60.29 billion in May 2023. Overall imports increased from US$ 66.40 billion in April 2023 to US$ 70.64 in May 2023.

Future Outlook

The WTO trade growth projection was revised to 1.7% from an earlier projection of 1%. It is estimated that demand revival will be seen from July-August 2023 onwards. India’s trade performance, after witnessing very strong growth in 2022-23 indicates declining trends as compared to the high base of last year as the pace of growth in global merchandise exports moderated significantly in 2023. The factors behind the same include geopolitical tensions and monetary tightening-induced recessionary fears that have led to a decline in consumer spending across developed nations.

The International Monetary Fund (IMF) expects India to grow by 5.9% in FY 2023–24 and by an average rate of 6.1% over the next five years. India still needs a strong rebound in investments to attain sustainable growth. Global uncertainties will weigh on growth this year as well. However, it is expected that investments will see a turnaround and thrust the economy into sustainable growth. India will likely grow at a resilient pace of 6% to 6.5% in FY 2023–24, as the global economy continues to struggle.