India ahead of rest of Asia : India’s merchandise exports up 6.2% YoY in Oct 2023, likely to enable narrower CAD in FY24

NEW DELHI : India’s Merchandise Exports were up 6.2 per cent YoY in October 2023 and 2.4 per cent on YoY basis in Aug-Oct’23 period, recovering slightly ahead of the rest of Asia’s exports, said a report by ICICI Securities. South Korea’s exports grew by 5.1 per cent on-year in October 2023 after 13 consecutive months of contraction, while Taiwan’s exports declined only 2.8 per cent YoY in Aug-Oct’23, although they were down 12.8 per cent YoY in Jan-Oct’23. China, however, was a slight exception with its goods exports declining 8.2 per cent YoY in Aug-Oct’23, worse than its Jan-Oct’23 contraction of 5.2 per cent YoY, similar to India’s 4.9 per cent YoY decline for Jan-Oct’23. 

Prasenjit Basu and Laavanya Sisaudia, analysts and economists at ICICI Securities, said, “Given the broad based cyclical rebound in engineering goods, textile and pharmaceutical exports, we expect India’s merchandise exports to accelerate further through the rest of FY24 and into FY25.”

Even as US import demand in Jan-Sep’23 weakened, it is now rebounding from its troughs even with the broad US economy weakening now, and this recovery in US and OECD demand will benefit Asia’s exports.

CAD to shrink to 0.4 per cent of GDP in FY24E

With services exports continuing to strongly outpace services imports, India’s services trade surplus expanded 21.7 per cent YoY in Apr-Oct’23. Further, since the merchandise deficit also declined by 12 per cent YoY, the current account deficit (CAD) is likely to have narrowed to about 0.7 per cent of GDP for the period, said ICICI Securities. “The final quarter of the fiscal year is usually the strongest for the current account balance, so we expect the CAD to shrink to 0.4 per cent of GDP for FY24 – assuming that Brent crude oil averages $90/bbl in the Dec’23-Mar’24 period. Should Brent settle near its current levels (USD 80.5/bbl), a current account surplus will be the likely outcome in FY24,” the analysis report stated. 

Exports, imports likely to strengthen in FY25

With Asia’s economies strengthening and the US Fed beginning to ease monetary policy by mid-CY24, the merchandise export recovery is likely to gather pace, said ICICI Securities. Nonetheless, it added, a cyclical recovery in the global economy (other than China) will still result in mildly higher commodity prices. Given the likely strengthening of Indian import demand next year, the CAD is likely to remain slightly below 1 per cent of GDP in FY25 despite the expected rebound in exports.

Merchandise exports grow 2.4 per cent YoY in Aug-Oct’23, imports decline 1.8 per cent YoY and the trade deficit continues to shrink

India’s merchandise exports increased by 6.2 per cent YoY in Oct’23, only the second month of YoY growth in FY24 and the third in CY23. Merchandise exports grew 2.44 per cent YoY in the latest three months (Aug-Oct’23), but were still down 7 per cent YoY in Apr-Oct’23 (the first seven months of FY24) and down 4.9 per cent YoY in Jan-Oct’23. This, ICICI Securities sais, is marginally better than China’s merchandise exports, which declined 5.2 per cent YoY in Jan-Oct’23 (despite benefitting from a very low base due to the Mar-Apr’22 covid surge and lockdowns) and -7.7 per cent YoY for Apr-Oct’23, but were still down 8.2 per cent YoY for Aug-Oct’23. Taiwan’s exports declined 12.8 per cent YoY in Jan-Oct’23 (but were down only 2.8 per cent YoY in Aug-Oct’23), while South Korea’s exports declined 11.5 per cent YoY in Jan-Sep’23, but rebounded to grow 5.1 per cent YoY in Oct’23. Indonesia’s exports declined 10.7 per cent YoY in Jan-Oct’23 and declined a less severe 10.4 per cent YoY in Oct’23.

India’s imports rebounded strongly in Oct’23, growing 12.3 per cent YoY, primarily because of a near-doubling (+95.4 per cent YoY growth) in gold imports that month. India’s imports had contracted YoY in each of the previous eight months, so merchandise imports still declined 9 per cent YoY in Apr-Oct’23 (more than than the 7 per cent YoY decline in exports during the period), and the merchandise trade deficit declined by $20bn YoY in Apr-Oct’23.

Services exports grow at a modest pace

Based on the RBI data, India’s services exports grew 9.1 per cent YoY in Jul-Sep’23 (Q2FY24), while services imports declined 3.5 per cent YoY – compared with 6.2 per cent YoY and -1.2 per cent YoY respectively in Q1FY24. Including the Oct’23 estimates, the services trade surplus in Apr-Oct’23 widened by 21.7 per cent YoY, thus continuing to contribute to a YoY reduction of the current account deficit (CAD).

Engineering goods exports set for cyclical acceleration, while electronics sustain their strength

According to the ICICI Securities report, a clear cyclical rebound has begun in the key manufactured-export category of engineering goods. Oct’23 marked the third consecutive month of YoY growth in engineering-goods exports. Electronics exports have grown strongly for five of the past six years, and grew 28.2 per cent YoY in Oct’23 (slightly more than their 27.7 per cent YoY growth in Apr-Oct’23). Chemical exports declined marginally YoY, but are set to rebound as well.

Cotton textile exports accelerate sharply, synthetics resume growing

Cotton textiles began rebounding in Jul’23, and have accelerated notably in Aug-Sep’23 (+26.7 per cent YoY) and Oct’23 (+36.5 per cent YoY). Synthetic textiles also resumed growing in Oct’23 (+10.2 per cent YoY), but garment exports were still contracting. 

Pharma exports strengthen; refinery, jewellery past their cyclical trough

The pharmaceutical sector has seen steady export growth over the past eight years, and accelerated to 29.3 per cent YoY growth in Oct’23 – taking their growth for Apr-Oct’23 to 8.1 per cent YoY. Petroleum product exports, however, still declined 4.65 per cent YoY in Oct’23 (and -16.2 per cent% YoY in Apr-Oct’23), while jewellery exports declined 9.8 per cent YoY in Oct’23, and 22.3 per cent YoY in Apr-Oct’23. Yet both are well past their cyclical trough and close to resuming at least modest growth, the ICICI Securities analysis stated.