Experts cite logistical, Red Sea crisis as issues impacting India's exports

The Red sea crisis and logistical challenges have severely impacted the country's exports in August, which contracted 9.3 per cent, according to exporters and experts.

Think tank GTRI said the contraction of petroleum product exports' by 37.56 per cent to $5.95 billion in August is linked to the ongoing disruptions in the Red Sea.

These exports were $9.54 billion in August 2023.

"This dramatic decline has significantly impacted India's overall merchandise trade, leading to a 9.33 per cent reduction in August 2024 compared to the previous year," Global Trade Research Initiative (GTRI) Founder Ajay Srivastava said.

Interestingly, he said, crude oil prices remained relatively stable between these two periods, suggesting that the drop in petroleum product exports is "linked to ongoing disruptions" in the Red Sea.

The yearlong ongoing disruptions have forced shipping routes to take longer paths around the Horn of Africa and the Cape of Good Hope, rendering exports to Europe less viable.

Federation of Indian Export Organisations (FIEO) President Ashwani Kumar said such a sharp decline in merchandise exports has come amidst continuous global economic uncertainties coupled with drop in commodity prices and logistical challenges.

"The ongoing international trade disruptions along with drop in crude and metal prices have also played key role in bringing down the value of exports. Some of the exporters have diverted to the domestic market as profitability in exports have taken a hit with sharp rise in international freight (both ship and air)," he said.

The logistical challenges that exporters are facing included lack of shipping space, irregular shipping schedule, and ships skipping Indian ports.

"In absolute terms, the trade gap widened to $29.65 billion in August, compared to $23.5 billion in July, which is a point of concern," Kumar said.

Kumar added that there is an "urgent and immediate" need is to take steps on the liquidity front with deeper interest subvention support and extension of interest equalisation scheme for at least five years, creating a predictable business environment for the exporters.

"The government should extend the RoDTEP (Remission of Duties or Taxes on Export Products) Scheme, expiring on September 30 so as to enable exporters to plan ahead," he said.

Mithileshwar Thakur, Secretary General, AEPC (Apparel Export Promotion Council), said the apparel exports kept its momentum of growth amidst the global headwinds growing at an average of 7.12 per cent during the April-August period.

"RMG (readymade garments) in August grew at impressive rate of 11.88 per cent showcasing the resilience of the industry and strength of Indian brands to comply with the global sourcing demand," Thakur said.

He added that the industry's order books are robust and the sector is hopeful of continuing the impressive growth.