The declining streak of India’s merchandise exports continued for the seventh straight month in August, but the pace slowed to 6.9% on-year to $34.5 billion, compared with an average 15% slide in the preceding quarter, indicating some sequential improvement.

While oil exports continue to witness a sharp decline (down 30.7% on-year in August) due to lower on-year prices, both non-oil and core (non-oil, non-gold¹) exports grew, if only mildly, for the first time in nine months in August - helped also by a low-base effect. Sectors such as pharmaceuticals, electronic goods, ceramics and some textile categories registered healthy export growth beside a sequential uptick in gems and jewellery exports.

Overall goods exports remain under pressure as global growth is softening and purchasing power impacted by high inflation. Moreover, there has been a shift in focus from manufacturing towards services, as indicated by purchasing manager indices (PMI), especially in the advanced economies.

Cumulatively, India’s merchandise exports fell 13.1% on-year to $170.7 billion during April-August 2023 from $196.3 billion in the year-ago period.

Merchandise imports, too, fell in August and the pace of their contraction was slower as well. Put another way, there was a sequential uptick. At $58.6 billion in August - the highest in eight months - merchandise imports were down a mere 5.2% on-year (compared with an average decline of 13.7% in the previous three months).

While overall merchandise imports fell, both non-oil and non-oil, non-gold imports grew on-year in August indicating healthy domestic economic momentum and increased local demand in view of the August festive season.

With imports increasing faster sequentialy than exports, merchandise trade deficit rose to a 10-month high of $24.2 billion in August from $20.1 billion in July. With the recent uptick in energy commodity prices, especially that of crude oil, India’s oil trade deficit has gone up in the past two months and will remain a key monitorable. Brent crude rose to $86.2/barrel (bbl) on average in August from $80.1/bbl in July and crossed $90/bbl in September.

After strong 12.7% on-year growth in July, services export growth is estimated to have declined to 3.8% in August (final data for services trade is released with a lag of two months). But services imports continued to shrink, thereby keeping the services trade surplus intact. This augurs well for India’s overall trade balance, especially at a time when merchandise exports are facing headwinds.