Exports contract 9.3%, while imports rise 3.3% on-year

India’s merchandise exports, which grew in the first quarter of this fiscal, seem to be facing headwinds this quarter. Exports contracted 9.3% on-year in August, following a 1.7% contraction in July, to $34.7 billion. This was driven by a sharp 37.6% on-year contraction in oil exports, reflecting softer crude-oil prices that averaged $80.9/bbl in August 2024 vs $86.2/bbl in August 2023, followed by gems and jewellery exports (down 23.1% on-year). Meantime, core¹ exports growth softened to 2.4% on-year from 5.7% in the previous month.

That said, some pressure on exports could also be due to the real effective exchange rate (REER), which has been ticking up since the beginning of this fiscal until July². An increase in REER is akin to appreciation of the rupee and adds pressure to exports, making them less competitive.

Although exports contracted, merchandise imports continued to grow, rising 3.3% on-year to an all-time high of $64.4 billion in August 2024, compared with $62.3 billion in August 2023 and $57.5 billion in July 2024. With oil imports contracting sharply, driven by a softening in crude oil prices, the surge in overall imports reflected a) a rise in core imports (suggesting buoyant domestic demand) and b) a sharp surge in gold and silver imports (due to an impact of duty cuts announced in the July budget).

The growth in imports, along with a decline in export growth, has led to a widening of the merchandise trade deficit to $29.7 billion from $24 billion in the year-ago period and $23.6 billion in the previous month. Although imports from China have increased in the last few months, there has also been a surge in imports from some other Asian economies such as Thailand and Vietnam. August also saw a rise in imports from Japan.

Cumulatively, merchandise exports rose 1.1% to $178.68 billion during April-August from $176.67 billion in the year-ago period. Cumulative imports grew faster at 7.1% to $295.3 billion from $275.8 billion. As a result, trade deficit widened to $116.6 billion from $99.2 billion in the previous year.

Services exports were strong, growing at 16.6% in July³, compared with 3.7% in June. Services import grew at a slower pace than exports, clocking 15.7% on-year in July versus a 3.8% contraction in June. As a result, services trade surplus was at $14.7 billion in July, higher than $12.5 billion in July 2023 and $13.8 billion in June.

¹ Non-oil and non-gold
² Latest data available until July
³ The latest data released by the RBI for the services sector is for July 2024