The global slowdown will more than offset export gains to be had from the rupee fall
India’s merchandise exports growth slowed to 1.6% on-year in August1 after growing 2.1% in July. That's a steep fall from the ~27% growth seen in the first quarter of this fiscal.
The reasons for the slide in export growth since the past few months are two-fold. One, India’s major exports destinations - the United States (US), United Kingdom (UK), and European Union (EU) - are battling economic slowdown on account of supply disruptions, high energy prices and monetary tightening. Whereas China’s growth is slowing due to tough Covid restrictions and the property market crisis. Two, the low base effect of the previous year is wearing off.
But did the rupee not depreciate ~7.1% against the US dollar between January- September 20222, which should have made Indian goods cheaper in international markets spurring exports?
So which effect prevails?
In this Quickonomics, we focus on the one-on-one relationship of global gross domestic product (GDP) and the exchange rate with exports, to find out.
Of course, these are only some of the demand side factors, which influence exports. Variables such as competitiveness, in turn determined by trade agreements, logistics, domestic manufacturing infrastructure, policy support on taxation and other elements that affect cost of production, too impact export supply, but these largely play out over the medium-long run.
