Falling trade numbers are not a good sign

The latest trade data released by the Ministry of Commerce and Industry has shown a fall in both exports and imports in February, which does not augur well for the economy. Goods exports were down 8.8 per cent to $33.9 billion, and imports fell 8.2 per cent from a year ago to $51.31 billion. The decline cannot be taken to be a temporary setback because merchandise exports have contracted in four of the five months since October. There was an 11.6 per cent drop in October 2022, a 3 per cent fall in December and a 6 per cent decline in January. Imports, which had fallen in January by 3.6 per cent, declined by 8.2 per cent in February. As a result of the fall in both imports and exports, the merchandise trade deficit shrank by 7 per cent. The first two months of 2023 have now seen a lower average deficit than during 2022, but it has to be seen in the context of the fall in both exports and imports. The goods trade deficit for the first 11 months of the financial year is about 43.5 per cent more than during the same period last year.

As many as 16 of the 30 important export segments, including major sectors like leather and textiles, showed a decline. Core export items like oil and jewellery also registered declines. Oil exports fell sharply by 28.8 per cent. It should be noted that the biggest declines happened in exports to major economies like the US, China and Japan. In the case of imports, core items have continued to contract. The fall in the imports of consumer and investment goods are signs of weakening domestic demand. While generally imports declined there was a sharp month-on-month increase in the import of gold, which is not a productive item of import.

It is true that the main reason for the fall in both exports and imports is the unfavourable external situation in which all the major economies are facing or fear a recession or a slowdown. The government has said that many sectors have been impacted due to contraction in demand, with rising inflation and economic recession in some markets. This is only likely to continue. According to some projections, India’s export growth is likely to fall by to 2-4 per cent in the coming fiscal because of the likely slowdown in the US and the EU. Both exports and imports are indicators of economic growth because trade is an important part of growth. If the present trend continues, it is likely to affect the recovery of the economy in the coming year. The higher interest rate regime, which the Reserve Bank of India will find it difficult to put an end to immediately, will add to the pain.