India’s exports contracted by 34.5 per cent in March, the steepest monthly fall in at least 25 years, as overseas demand remained lacklustre due to the coronavirus pandemic.
This, coupled with trade demand remaining soft for months earlier, led to annual exports falling to $314 billion in 2019-20, 5 per cent lower than the $331 billion worth of shipments in the previous year. This is the first time in four years that annual exports have fallen.
According to the data released by the commerce and industry ministry on Wednesday, exports stood at just $21.4 billion in March, as a massive broad-based decline plagued all major foreign exchange earning sectors.
The latest blow cut short the government’s internal target of $350 billion of outbound trade, which commerce department officials had been hopeful of crossing.
A wave of cancellation and postponement of foreign orders in key sectors such as gems and jewellery, engineering goods, and petrochemicals, meant exports contracted by record margins in March.
The rate of fall in March was most since at least April 1, 1995. In May 2009, exports had declined 34.22 per cent.
The Federation of Indian Export Organisations said Covid-19 had pulled down monthly exports to the highest-ever double-digit decline in recent times.
Also, with ports across China and Europe closing down in March, imports also contracted by a massive 28.72 per cent. Overall, India’s imports reduced by 8 per cent in 2019-20. As a result, the $152.9-billion trade deficit in FY20 was much lower than $176.4 billion in the previous year.
After falling for six continuous months, exports had made a surprising recovery in February with a 2.9 per cent growth. But the major fall in March has come in much lower than the most conservative estimates. “With major economies continuing to see sharp rise in corona cases, the cumulative fall in demand would spill over into April, causing a bigger contraction,” Ajay Sahai, director general of the FIEO, said. A string of order cancellations by major clients in the US and Europe — two major centres of the outbreak — is expected to hit a large number of sectors.
All of the 30 major product groups recorded contraction in March, up from 14 in February. Engineering goods saw a 42.3 per cent contraction after a 8.7 per cent rise in the previous month. The sector accounts for nearly one-fourth of the total foreign exchange earned through exports, and exporters have maintained that a lack of liquidity has crippled the sector.
“This is not a surprise with major economies of the world in a state of lockdown. April would be worse as international trade (except medicine and essential supplies) has come to a near halt. Exporters are facing a question of survival,” Engineering Export Promotion Council India Chairman Ravi Sehgal said.
Readymade garments, the sector in which India’s export competitiveness has steadily fallen over the past financial year, showed merchandise exported fell by 35 per cent in March. Compared to this, exports had seen just a marginal 0.35 per cent fall in February.
Despite other major nations ordering major quantities of drugs and pharmaceuticals from India, exports went down by more than 22 per cent in March after a 8 per cent growth in February. The same was true for gems and jewellery which also slid by 41 per cent, higher than the 21 per cent contraction in the previous month.
‘’We urgently need Covid interest-free working capital term loan to exporters to cover the cost of wages, rental and utilities, EPF and ESIC waiver for 3 months from March to May, 2020, and extension of pre and post shipment credit by 90-180 days on their maturity,” said FIEO President Sharad Kumar Saraf.
Crude impact sharpens
Receipts from the volatile processed petroleum exports fell by 31.2 per cent in March to just $ 2.49 billion as global oil prices crashed amidst a major slump in global demand. In February, petroleum exports had risen by 10 per cent. While declining oil prices have marred the chances of earning the same dollars through exports in recent months, it has helped India save foreign exchange through a slowdown in imports.
The largest component of the import bill – crude oil – saw the cost of inbound shipments fall by 15 per cent to $10 billion. However, gold, the second-largest item in the import bill, continued to fall. Incoming gold shipments fell by a massive 64 per cent.
Non-oil and non-gold imports – an indicator of domestic industrial demand – fell for the 17th month, contracting 30.47 per cent. “With the merchandise trade deficit for March 2020 printing higher than our forecast, we now expect a small current account deficit of $4-6 billion in Q4 FY2020, resulting in a full year deficit of $28 billion or 1% of GDP,” said Aditi Nayar, Principal Economist, ICRA.