Indian exports show resilience amid global challenges in first quarter: CRISIL report

New Delhi [India], July 17 : Despite geopolitical tensions in Europe and the Middle East, India's merchandise exports grew by 5.8 percent to USD 109.96 billion compared to USD 103.9 billion in the same period last year, according to a CRISIL report.
The report states that the deceleration in the growth momentum of exports in June compared to May was largely due to an 18.2 percent contraction in oil exports. The growth momentum slowed down in June, with merchandise exports increasing by only 2.6 percent year-on-year, down from 9.1 percent in May.
Non-oil exports continued to maintain steady growth, rising by 7.7 percent in June, almost in line with the 7.8 percent growth recorded in May. Services exports exhibited a strong performance in June, contributing positively to the overall trade scenario.
The positive aspect is that merchandise imports grew at a slower pace of 5.0 percent year-on-year in June, down from 7.7 percent in May.
However, core imports, excluding oil and gold, surged by 7.1 percent, increasing from the 0.8 percent growth in the previous month. This spike in core imports was partially driven by a low base effect from the previous year.
Despite the positive growth in exports, the trade deficit widened to USD 21 billion in June from USD 19.2 billion in the same month last year.
For the first quarter, cumulative imports rose by 7.7 percent to USD 172.4 billion from USD 160 billion, resulting in a trade deficit of USD 62.44 billion, up from USD 56.1 billion.
This widening deficit was mainly due to a higher oil trade deficit, while the non-oil trade deficit narrowed. Services exports were a bright spot, increasing by 10.2 percent year-on-year to USD 29.76 billion in May. On the other hand, service import growth moderated to 5.4 percent, down from 19.1 percent in the previous month.
Consequently, the services trade surplus expanded to USD 13.02 billion, up from USD 11.1 billion in May last year.
Oil exports fell by 18.3 percent year-on-year and 18.5 percent month-on-month in June, despite stable international prices. This suggests a reduction in export volumes, with exports falling to USD 5.5 billion from USD 6.8 billion in June last year and the previous month.
Oil imports increased by 19.6 percent in June compared to 28 percent in May, driven by domestic demand and local refineries operating above capacity. Sectors such as drugs and pharmaceuticals, engineering goods, organic and inorganic chemicals, and ready-made garments showed positive growth.
However, pharmaceuticals (9.9 percent vs. 10.5 percent) and ready-made garments (3.7 percent vs. 9.8 percent) saw slower growth compared to May.
Gems and jewellery exports continued to decline, marking the seventh consecutive month of negative growth at -1.4 percent year-on-year.
Growth in carpets, handloom products, man-made products, plastics, and linoleum was positive but slower than the previous month.
Handmade carpets (-16.6 percent vs. 20.6 percent), jute manufacturing (-11.1 percent vs. -5.2 percent), and leather products (-2.2 percent vs -2.1 percent) recorded contractions.
Cashew exports have been declining since 2018, with only sporadic months of positive growth. In June, cashew exports fell by 7.3 percent, an improvement from the 25.8 percent decline in May.
Coffee (70 percent vs. 64.2 percent), fruits and vegetables (7 percent vs. 20.8 percent), rice (1 percent vs. 2.8 percent), spices (9.8 percent vs. 20.3 percent), tea (3.2 percent vs. 19.6 percent), and tobacco (37.7 percent vs. 58.4 percent) saw slower growth compared to May.
Marine products (-7.7 percent vs. -3.9 percent) and meat, dairy, and poultry products (-13.9 percent vs. 22.9 percent) also experienced a decline.
Increases were noted in electronic goods (15.9 percent vs. 6.7 percent), fruits and vegetables (22.6 percent vs. 3 percent), non-ferrous metals (47.6 percent vs. 1.1 percent), project goods (31.4 percent vs. -44.3 percent), textiles and yarn fabric made-up articles (23.8 percent vs. -1.1 percent), and wood products (16.2 percent vs. -7.2 percent).
The fiscal year has started positively with steady merchandise export growth in the first quarter. Encouragingly, multilateral organisations have forecasted better year-on-year trade growth.
The Indian government's focus on foreign trade agreements (FTAs) is expected to further boost trade.
However, the persistent growth in imports surpassing exports is a concern, widening the trade deficit. The recent US tariff hikes on Chinese imports could lead to potential dumping by China in the Asian market, including India, which requires close monitoring.
Despite these challenges, the expected moderation in domestic growth may help contain import growth and the trade deficit. The service trade surplus and robust remittance flows are positive indicators that the current account will remain stable.