India’s merchandise exports fell 8.8% on-year to $33.9 billion in February 20231. A large part of the decline was because of oil exports plunging 28.6% on-year, which was also the first annual decline since February 2021. While some base effect was at play, there was a significant sequential decline as well. Even non-oil exports fell a moderate 4.3% on-year.
Sequential decline in oil exports was somewhat surprising as global crude oil prices were relatively stable ($80.25/barrel in February vs. $80.41/barrel in January 2023) and the government had reduced tax on petroleum exports mid last month. It is likely that a sharp surge in oil exports (which rose 50% on-year between April 2022 and February 2023, compared with 7.6% rise in overall goods exports) on the back of higher discounted crude oil imports from Russia is starting to normalise.
Core (non-oil, non-gold) exports fell 6.4% on-year in February, too, though lesser than the 8.8% decline in overall merchandise exports. This was because growth in the US and in Europe, which account for ~34% of India’s goods exports, remained resilient. That said, there appears to be a shift from goods towards services demand, which is less import intensive. Hence, the goods export slowdown will continue and could intensify as the impact of monetary policy tightening gathers pace.
Meanwhile, merchandise imports fell by a slightly lesser 8.2% on-year to $51.3 billion in February. In fact, core (non-oil, non-gold) imports shrank at a much smaller rate of 2.0%, indicating that domestic economic activity is still showing resilience.
As a result of the sharper decline in overall exports vis-à-vis overall imports, India’s merchandise trade deficit widened marginally to $17.4 billion in February from $16.6 billion in January 2023. Nevertheless, merchandise trade deficit remains on the decline as softening international commodity prices help reduce India’s import bill.
Year-to-date (April 2022 to February 2023), merchandise exports stood at $405.9 billion, up 7.6% from $377.4 billion in the year ago period. Imports, on the other hand, rose a sharper 19.2% to $655.4 billion from $549.9 billion. As a result, the cumulative trade deficit widened to $249.5 billion from $172.5 billion.
1 Please note that due to upward revision in data for the previous month (to $35.8 billion from $32.9 billion), merchandise exports in January grew 1.5% rather than 6.6% contraction estimated earlier
