India: India needs a strategy to deal with falling exports
Rising interest rates in major export destinations like the US and EU are squeezing demand for Indian exports. The fragmentation of trade due to the war in Ukraine adds to the tension. Although cumulative exports have not strayed too far from this year’s target, India could benefit from the accelerated bilateral free trade agreements it is negotiating. Turmoil in global financial markets contributing to the depreciation of the rupee could provide an opportunity to gain market share in global trade if competing currencies do not lose value against the dollar faster.
Imports in October slowed to a growth rate of 5.7% due to declines in 15 of the top 30 commodities, including gold. Energy imports, however, remained strong, while machinery imports, a marker of domestic demand, edged up. The $26.91 billion merchandise trade deficit brings the year-to-date figure to $173.46 billion from $94.16 billion in April-October 2021. The gap is not not covered by services exports, with the combined trade deficit for goods and services deteriorating to $98.52. billion in April-October compared to $34.05 billion in the same period of 2021. Greater import substitution could help balance Indian trade, but could come at the expense of export competitiveness.