India’s exports (goods and services combined) at $60.29 billion in May 2023 were lower than exports of $64.13 billion in May 2022, registering a decline of ~6 per cent. There was a sharper deceleration in June 2023 by 13.16 per cent with India recording exports of $60.09 billion against exports of $69.20 billion in June 2022. For the first quarter 2023-24 (Q1 2024), total merchandise and services exports fell by $14.09 billion year-on-year.
Merchandise exports suffered the most. In Q1 2024, merchandise exports at $102.68 billion were $18.3 billion smaller than the exports of $120.98 billion dollar in the Q1 2023, contracting by 15 per cent. Services exports, which have been growing well for quite some time, were $27.12 billion in June 2023 against the exports of $26.92 billion in June 2022, indicating loss of momentum.
In 2021-22, merchandise export had blossomed registering 45 per cent year-on-year growth. In 2022-23, merchandise exports still recorded growth, albeit much lower at about 6 per cent. In 2023-24, this significantly contracted. Services exports were booming in 2022-23; now that seems to be stagnating.
Was India’s export growth story a few months’ affair? Will exports register absolute decline in 2023? If so, how much? Does it signal difficult times on the economic and external front in times to come?
Merchandise exports
Merchandise exports have declined in all the three months of Q1 2024 — by $5.04 billion in April, by $4.02 billion in May, and by $9.31 billion in June. In June 2023, merchandise exports at $32.97 billion have currently declined by 22 per cent!
Of the 30 major export items which account for roughly 92 per cent of India’s export basket, 19 recorded negative export growth during the Q1 2024. While export contraction was expected in the case of petroleum products, there was a significant decline in other export items such as gems and jewellery, and engineering goods as well.
Of the 11 items which registered positive growth, electronic goods (primarily export of mobile phones), recorded a handsome growth of ~47 per cent in Q1 2024 (from $4.73 billion to $6.96 billion QOQ). Interestingly, the import of electronics goods also recorded an increase from $18.59 billion in Q1 2023 to $19.75 billion in Q1 2024. Import of electronic goods now make up about one-eighth of our goods import, and is the second-largest item of imports, the first being petroleum products.
India had recorded massive growth in 2021-22 when the exports grew to $422 billion from $291 billion the year before, after remaining stagnant around $300 billion for many years. Growth slowed in 2022-23 with exports amounting to $447 billion.
The absolute decline of $18.3 billion in the Q1 2024 sounds ominous. India has recently decided to ban exports of non-basmati white rice. Some other restrictions have also been imposed. These bans/restrictions would have their impacts. India’s merchandise exports seem clearly headed towards being less than $422 billion registered in 2021-22. It would indeed be a nasty surprise, though not entirely unlikely, if exports decline to less than $400 billion.
Services exports
India’s services exports at $32.24 billion in January 2023 were almost at par with the merchandise exports of $32.91 billion. Services exports had recorded excellent growth throughout 2022-23.
Services exports of $30.36 billion in April 2023 were also respectable. Thereafter, an uncomfortable trend seems to be setting in. In May 2023, services exports were $25.30 billion, the lowest after August 2022. In June 2023, services exports at $27.12 billion were the lowest after December 2022, barring of course May 2023.
For Q1 2024, services export ($80.03 billion) grew by only 5 per cent over Q1 2023’s $76.09 billion. It had recorded a monthly average of $28.55 billion in the last six months of 2022-23. The Q1 2024 services exports at $27.60 billion per month is about $1 billion per month less than that.
The Union government does not provide data of key services exports like it does for the 30 key merchandise exports. It is difficult to see where the slowdown is setting in. The broad trend is concerning. Let us, as a nation, pay attention to what is happening in the services exports.
Stop announcing export targets
The Centre cannot promote exports of goods and services by setting export targets.
It has also been trying to boost exports by providing tax, expenditure, and other monetary incentives. There are numerous such schemes in operation. However, no direct correlation has been witnessed between these scheme outlays and the export performance.
In 2021-22 and in the first half of 2022-23, exports boomed though there was no material change in the incentive package. Seven to eight years prior to that there was a complete stagnation in exports despite government schemes being by and large the same. A similar fate may be awaiting in 2023-24. The incoming slowdown in exports, it seems, will not be arrested by the government schemes and targets.
Only by making agriculture, industry, and services internationally competitive, by making our industry part of the global value chains and focussing on services exports, can we find a good solution.
(Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream’ and ‘Explanation and Commentary on Budget 2023-24’.)
Disclaimer: The views expressed above are the author's own. They do not necesarily reflect the views of DH.