Exports contract for fifth straight month in December, imports shrink 8.8%

Policymakers worried over dwindling imports, which contracted for 7th month

Exports contracted for the fifth straight month in December, as processed petroleum exports saw lower receipts and broad-based decline continued to plague all major foreign exchange earning sectors, according to data released on Wednesday by the commerce and industry ministry.

The decline in exports stood at 1.8 per cent in December, higher than the 0.3 per cent fall in November. Outbound trade contracted for the sixth month out of the first nine months of the financial year 2019-20 (FY20). Till December, cumulative exports stood at $239 billion, 2 per cent lower than the corresponding period in the previous financial year.

However, officials remain worried about falling imports, which contracted in December by 8.8 per cent. As inbound goods reduced for the seventh time in FY20, economists said this shows low demand for both consumer and industrial items — the hallmark of a slowdown. But the rate of import fall had reduced since October, when it crashed by 16.4 per cent. India imported $306 billion worth of goods during the April-October period, 8.37 per cent lower than the previous year.

As a result, merchandise trade deficit remained relatively low at $11.2 billion, slightly lower than November’s $12.1 billion. Cumulative trade deficit reached $118 billion till December. “The decline in the merchandise trade deficit in December 2019 relative to December 2018 was driven by the relatively broad-based contraction in imports, led by industrial inputs such as coal, chemicals, iron and steel, and non-ferrous metals, transport equipment, and consumer items such as precious and semi-precious stones,” said Aditi Nayar, principal economist at ICRA.

Bleak exports

Government data showed that exports stood at $27.36 billion in December, and 19 of the 30 major export sectors saw contraction. Critically, processed petroleum outflows continued to take a beating, with receipts falling by 4.2 per cent in December to $3.8 billion. But the pace of contraction was lower than November's 13 per cent.

For gems and jewellery, exports reduced by 8 per cent to just $2.8 billion in December. The sector has faced a slowdown since last year but saw growth in October, when exports rose 6 per cent. 

Meanwhile, engineering exports saw a contraction of 1.2 per cent in December, after a 6 per cent rise in November. The sector, which accounts for 25 per cent of the forex earned, had broken a long spell of contraction in October. “Rising domestic inflation is bringing additional pressure and affecting our global competitive strength,” Ravi Sehgal, chairman of Engineering Export Promotion Council, said.

Elsewhere, apparel exports saw nominal growth of 2.4 per cent, while electronics (30 per cent) and pharmaceuticals (13 per cent) also posted growth. Despite this, exports of non-oil and non-gems and jewellery products contracted by 0.5 per cent in December, after the modest growth seen in the previous two month.

“Domestic issues, including uncertainty over the Merchandise  Exports from India Scheme (MEIS), were a major cause of concern as exporters' claims are pending for over five months, which has completely wiped out their liquidity and has kept them in doldrums with regard to finalising new contracts,” said Sharad Kumar Saraf, president of the Federation of Indian Export Organisations. Service exports, however, continued to grow, rising 8 per cent in November to earn $17.9 billion in November and taking total earnings in the current fiscal to over $150 billion.

Import slide

The largest component of the import bill – crude oil – saw the cost of inbound shipments fall by 0.3 per cent to $10.6 billion, as compared to $11 billion in November. Crude oil imports had shown significant reduction in value terms throughout FY20 with global prices tanking.

However, gold, the second-largest item in the import bill, continued to fall. Incoming gold shipments narrowed by a moderate 4 per cent after massive drops of 50 per cent, 62 per cent, and 42 per cent in previous months, respectively. Non-oil and non-gold imports – a sign of domestic industrial demand – fell for the fourteenth month, contracting 12.2 per cent. Experts said they expect the current account deficit to dive to $3-5 billion in the quarter, compared to US$18 billion in FY19.

The rise in gold prices is expected to continue to constrain demand in the ongoing quarter, despite the favourable outlook for rabi harvest, which would continue to curtail the size of the current account deficit, Nayar said.