India’s merchandise exports contracted 2.6% on-year to $34.5 billion in September, following 3.9% growth¹ the previous month. The September quarter appears to indicate lesser decline in exports despite the challenging trade environment. Exports contracted 2.9% on-year in the September quarter compared with 13.9% decline in the June quarter.

Exports are expected to remain under pressure as global headwinds continue to blow. Notably, the World Trade Organization has cut its world merchandise trade growth projection for 2023 to 0.8% from 1.7% projected in April.

Cumulatively, India’s merchandise exports have declined 8.8% on-year to $211.4 billion during April-September from $231.7 billion in the year-ago period.

Decline in merchandise exports in September was largely because of 10.6% on-year fall in oil exports. The fact that oil exports fell in September, despite the rise in crude oil prices, both sequentially and on-year², points toward a) subdued global demand and b) the impact of increase in export tax on diesel and aviation turbine fuel domestically.

While core (non-oil, non-gold³) exports rose 1.2% on-year in September - registering positive growth for the second consecutive month - it was on a low base. Sequentially, core exports declined in September. That said, exports of some of the key core categories such as engineering goods and pharmaceuticals recorded uptick for the second consecutive month. Other smaller categories such as ceramics, some textile categories and iron ore, too, registered healthy export growth. However, electronic exports, which hitherto had recorded healthy double-digit growth, came under pressure, contracting for the first time in 31 months, albeit on a high base.

Merchandise imports fell a sharp 15% on-year to $53.8 billion in September, and were also down sequentially from $60.2 billion in August. However, services exports recorded 8%+ growth for the second consecutive month in August (the latest month for which actual data is available).

Unlike exports, not only was the decline in merchandise imports sharper, but was also more broad-based with all three categories - oil, gold and core - recording on-year decline in September, indicating some softness in domestic economic momentum. This may correct in the near term on upcoming festive demand.

A sharper decline in imports than exports narrowed the merchandise trade deficit to $19.4 billion in September from $21.7 billion in August and $27.9 billion in September last year.

¹ Merchandise exports data for August was revised upwards to $38.5 billion from $34.5 billion
² Brent spot averaged $94/bbl in September 2023 compared with $86.2/bbl in August 2023 and $90.2/bbl in September 2022
³ Gold refers to gems and jewellery