Exports contract 6% in August, trade deficit narrows to $13.45 billion

Critical exports such as those of processed petroleum took a beating with receipts falling by more than 10% to $3.31 billion
Exports in August contracted for a second time in the current fiscal year as poor performance plagued all major foreign-exchange earners such as petroleum oil, gems and jewellery, and engineering goods.

Outbound trade dropped 6.05 per cent after rising by 2.25 per cent in July. According to the data released by the commerce and industry ministry on Friday, exports stood at $26.13 billion in the month.

Imports, which contracted for a third straight month, dipped by 13.45 per cent in August, the highest fall this fiscal year. Consequently, the trade deficit stood at $13.45 billion in August, the second-lowest in the first five months of the current fiscal year.

Bleak exports

Seven of the 30 major export sectors saw contraction, showing low demand for both consumer and industrial items, a hallmark of a slowdown. Critical exports such as those of processed petroleum took a beating with receipts falling by more than 10 per cent to $3.31 billion. In July, this category had shown a better performance with a lower fall of 5 per cent. This had been due to major refineries in Jamnagar and Mangalore staying shut. Recently, senior government officials had said they expected exports in the sector to go up soon.

For gems and jewellery, the contraction that had gripped the sector periodically since November continued in August, when the sector contracted by 3.54 per cent to ship out $3.21 billion worth of goods. Exports of gems went down 6.54 per cent in July. The pace of exports has been hit in the sector, as fund availability dried up in the aftermath of the Nirav Modi scam.

After being one of the growth drivers in the previous fiscal year, engineering goods fell by a heightened 9.35 per cent. The pace of contraction had been 1.69 per cent in July, with the sector accounting for nearly 25 per cent of the foreign exchange earned.  “We need to fix issues like high raw material cost, mainly of steel,” Engineering Exports Promotion Council Chairman Ravi Sehgal said. 

Export of readymade garments, in which India’s export competitiveness has fallen over the past fiscal year, contracted by 2.44 per cent in August. The sector had shown signs of steady recovery in July with 7.66 per cent growth. Only eight of the 30 major product groups were in positive territory. They included electronic goods, iron-ore, ceramic products, and processed mineral.

“All major sectors of exports, including almost all labour-intensive sectors, besides petroleum, were in negative territory, showing decelerating trends. The slowdown in chemical and plastics exports is particularly worrisome because we were growing in those,” said Sharad Kumar Saraf, president of the Federation of Indian Export Organisations.

Exports of non-oil and non-gems and jewellery products declined by 5.61 per cent in August.

Import slide

The largest component of the import bill — crude oil — saw the cost of inbound shipments fall by 8.9 per cent to $10.87 billion in August. Crude oil imports had gone down by a massive 22 per cent in the previous month.

However, the second-largest item in the import bill — gold — fell by a massive 62 per cent, the contraction speeding up from a 42 per cent fall in July. Imports of the metal had continued to see an uptick in early 2019 before crashing since June even as the industry had continued to see volatility.

“The YoY contraction in imports of items such as transport equipment, machinery and fertilisers should be viewed with caution, as they suggest that the underlying demand dynamics are weak,” Aditi Nayar, principal economist at ICRA, said.

Non-oil, non-gold imports, a sign of domestic industrial demand, fell for the 10th straight month in August, contracting by 9 per cent. “Led by sectors such as transport equipment and machinery, this provides a cautionary signal regarding the strength of underlying economic activity,” said Nayar.

The current account deficit is likely to decline substantially to $10-11 billion in the second quarter on the back of moderate crude oil prices and weak appetite for gold imports, she said.

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