Falling merchandise exports threaten India's economic growth, govt warns

The government in its latest report has also cautioned that inflation will not be softened below 5% till about first half of next year

India’s projected 7.2 per cent economic growth for the financial year 2022-23 may be challenged if merchandise exports, which have fallen to a five-month low in July 2022, do not recover to their earlier high levels, warns the finance ministry amid slowing growth in Advance Economies is set to weaken cross-border trade.

India’s merchandise exports jumped to their highest ever at $422 billion in FY22 on the back of $330 billion in the previous year.

The ministry in its latest report has also cautioned that inflation will not be softened below 5 per cent till about first half of next year (2023).

“An unchanged growth projection (by RBI in its August monetary policy) reflects the growth momentum in the Indian economy. However, the momentum may be challenged if merchandise exports, which have fallen to a five-month low in July, 2022, do not recover to their earlier high levels," the ministry said in its economic review for the month of July.

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Recessionary concerns in advanced economies due to the Russian invasion of Ukraine, continued disruption in supply chains and China’s slowdown may lead to exports getting hit in 2022-23 after showing a handsome performance in 2021-22, analysts said.

Slowing exports are also expected to hit India’s manufacturing sector performance.

The Indian manufacturing sector, which received a fillip in FY22 due to export growth, is likely to be hit by a slump in foreign trade activity in FY23, said a report by India Ratings and Research this week.

Consumer demand in the US and the EU, the two of India’s biggest export markets, as well as in other advanced economies, is likely to slowdown due to central banks resorting to aggressive interest rate hikes. This will impact export orders in the months to come.

The ministry, however, said that the private sector and banking sector balance sheets are healthy and there is an appetite to borrow and to lend respectively.

“As and when the Indian private sector embarks on the long-awaited capital expenditure cycle, building on the government’s capital expenditure of recent years, India’s potential and estimated economic growth performance in the rest of the decade will inevitably be revised higher,” the ministry said.