For the month, merchandise exports slipped to USD 29.8 bn – the first monthly reading below USD 30 bn in last 20 months, compared to USD 35.4 bn in Sep-22. This translated into a contraction of 16.0% on a MoM basis and 16.7% on an annualized basis.

• The sequential decline in exports was led by Petroleum Products (-USD 2.7 bn), Engineering Goods (-USD 1.0 bn), Gems & Jewellery (-USD 0.5 bn), Chemicals (-USD 0.3 bn), Electronic Goods (-USD 0.2 bn), and Agri & Allied Products (-USD 0.1 bn).
• None of the major export categories registered a sequential increase in the month, reflecting a slowdown in demand in the importing nations.
• Cumulative exports over Apr-Oct FY23 stand at USD 261.7 bn, an increase of 11.8% compared to the corresponding period in FY22.
• Deceleration in domestic exports reflects the slowdown in global growth momentum, especially in developed economies.

Imports

Merchandise imports eased to a 6-month low of USD 56.7 bn compared to USD 61.2 bn in Sep-22, translating into a sequential contraction of 7.3% MoM. On annualized basis, imports clocked an expansion of 5.7% - the second month of single-digit growth. 

• At a broad level, while Oil imports remained steady at USD 15.9 bn, both Gold (-USD 1.1 bn) and Non-oil non gold imports (-USD 3.3 bn) witnessed a deceleration versus Sep-22.
• At a granular level, sequential decline in imports was led by Gems & Jewellery (-USD 1.1 bn), Electronic Goods (-USD 0.9 bn), Ores & Minerals (-USD 0.4 bn), Transport Equipment (-USD 0.4 bn), Agri & Allied Products (-USD 0.3 bn), and Textiles (-USD 0.2 bn).
• In contrast, performance of some imports bettered in Oct-22, of which Fertilizer, Paper pulp and Iron & steel imports touched a record high.
  
• Cumulative imports over Apr-Oct FY23 stand at USD 437 bn, an increase of 33.2% compared to the corresponding period in FY22.

Outlook

Opposed to a mild constriction that was anticipated in imports (on account of the recent softness in global commodity prices and easing global supply chain pressures), the higher-than-expected drop in exports led to an unexpected expansion of the trade deficit in Oct-22. It appears that the reduction in number of working days in the festive heavy month along with the impact of reimposition of windfall tax on crude oil and continuing restrictions on certain export items weighed on outbound shipments.

While Nov-22 exports could fare better sequentially (aided by year-end seasonality), outlook for exports remains somewhat worrisome amidst weakening global demand impulses, tightening global financial conditions and lingering geopolitical uncertainties. After cutting its global growth forecast for 2023 by 20 bps to 2.7%, IMF in its recent commentary flagged off further downside risks calling the global outlook even ‘gloomier’. This could weigh on domestic export growth, likely to dip into single digits for FY23.

In comparison, imports are likely to continue to outpace exports amidst enduring domestic growth momentum, aided by festive/pent-up demand and Government’s capex expenditure. Having said so, after a peak out at USD 66.7 bn in Jun-22, imports have sequentially moved lower in each of the last four months reflecting the decline in global commodity prices. The Reuters CRB index after peaking in early Jun-22, has moderated by over 12% despite some moderate bounce-back over the last one month. In addition, the anticipated moderation in domestic economic activity in H2 FY23 could further weigh on imports.

On net basis, we continue to stick to our FY23 current account deficit forecast of USD 130 bn although there is a likelihood it can be moderately lower due to the aforesaid factors.

Table 1: Highlights of merchandise trade balance 

Note: Numbers may not add up due to rounding off and revision in headline exports and imports

Chart 1: Exports see a strong sequential and annualized contraction in Oct-22