India’s merchandise exports fell 13.9% on-year to $38.4 billion in March 2023, compared with a 0.4%1 contraction in the previous month. To be sure, the decline is not only on account of a high base effect (since exports had picked up sharply in March 2022) but also due to a loss in sequential momentum. It is important to note the decline was largely attributed to a massive decline in oil and gems & jewellery exports while core (non-oil, non-gold) exports were less affected.
With average international crude oil prices cooling to $76.5/barrel in March, from $80.3/barrel in February, India’s oil exports declined to $5.4 billion from $7.8 billion, down 44.6% on-year. This also suggests the benefit of high oil exports on the back of the price surge following the Russsia-Ukraine conflict in 2022 is now diminishing. It is noteworthy that in fiscal 2023, oil exports grew a massive 40.1% even as non-oil exports declined 0.5%.
Gems & jewellery exports declined sharply in March, contracting 27.4% on-year. Their duller sheen hints at softening discretionary demand, especially in the United States, the biggest export destination for India’s gems & jewellery exports.
Core (non-oil, non-gold2) exports fell by a narrower 2.5% on-year in March, helped by an uptick in exports of items such as pharmaceutical products, coffee, dairy and poultry, and continued healthy growth in electronic, iron ore and some of the agri (oil meals, oil seeds, etc.) exports. Demand is shifting from goods towards less import-intensive services in India’s major export destinations such as the US. The goods export slowdown could intensify and spread to other product categories, especially as the impact of monetary policy tightening gathers pace. Moreover, India’s top export items such as engineering goods and gems & jewellery remain under stress and petroleum exports have also started declining, weighing on overall export prospects this fiscal.
Merchandise imports fell by a lesser 7.9% on-year to $58.1 billion in March. This too was largely premised on a 23.7% on-year decline in oil imports, reflecting the benefit of lower crude prices. Core imports also shrank, but by a smaller 4.7%, indicating domestic economic activity is still showing resilience (sequentially, in seasonally adjusted terms, core imports fell just 0.5%). At the same time, it is noteworthy that the on-year decline in core imports also reflects the benefit from the lower international commodity prices. That said, gold imports rose sharply during the month, weighing on the overall import bill.
As a result of the sharper decline in overall exports vis-à-vis overall imports, India’s merchandise trade deficit widened to $19.7 billion in March from $16.2 billion in February and $18.5 billion a year ago.
For fiscal 2023, India’s merchandise trade deficit stood at $266.7 billion, up from $191.1 billion in fiscal 2022. Exports rose to $447.5 billion from $422.0 billion in fiscal 2022 (up 6.0%). However, imports shot up by a much larger 16.5% (to $714.2 billion from $613.0 billion), suggesting India’s trade balance was impacted adversely from harder commodity prices and its relatively higher growth in the previous fiscal.
1 Due to the upward revision in the data, exports fell a mere 0.4% on-year in February 2023, compared with an 8.8% decline suggested initially by the commerce ministry
2 Gold in the core exports and imports, refer to total gems & jewellery data
