India's Trade Performance in August 2024 and its implications for Indian Economy
Merchandise and Services Exports in August 2024
India's total exports, encompassing both merchandise and services, reached USD 65.40 billion in August 2024. This represents a decline of 2.38% compared to the same month in 2023. While merchandise exports have shown consistent growth over the past few months, the slowdown in services exports, particularly in the IT sector, has contributed to the overall negative growth. Factors contributing to this decline include global economic uncertainty, rising interest rates, and weakening demand in key export markets.
The decline in services exports is particularly concerning, as this sector has been a key driver of India's economic growth in recent years. The IT sector, which accounts for a significant portion of services exports, has been hit hard by the slowdown in global demand. Companies in the IT sector have been forced to lay off workers and cut back on investments, as businesses in developed economies reduce their technology spending.
The Indian government is taking steps to address the slowdown in exports, including providing incentives to exporters and promoting trade with emerging markets. However, it is likely that the global economic environment will remain challenging in the coming months, and India's exporters will need to be prepared to navigate these challenges.
Merchandise and Services Imports in August 2024
India's total imports, including merchandise and services, amounted to USD 80.06 billion in August 2024. This marks a positive growth of 3.45% compared to the same month in 2023. The surge in imports is primarily driven by increased demand for petroleum products, gold, and other raw materials.
The rise in petroleum product imports reflects a strong demand from domestic industries and consumers, coupled with global oil prices hovering at elevated levels. The increase in gold imports reflects both investment demand and a surge in consumer spending on jewelry and other gold-related products. This trend indicates a rise in consumer confidence and discretionary spending in the Indian economy.
The growth in imports of other raw materials signifies an expansion in manufacturing activity, with businesses stocking up on essential inputs to support their production processes. This points towards a robust demand for manufactured goods, both domestically and for exports. The overall increase in imports, driven by these factors, indicates a healthy economic environment with positive growth prospects
Negative Growth in Exports in FY25 -forecast
Global Economic Uncertainty
The global economic outlook remains uncertain, with ongoing geopolitical tensions and inflation impacting consumer sentiment and demand for Indian goods and services.
Weakening Demand in Key Export Markets
Major export markets, including the United States and Europe, are grappling with their own economic challenges, leading to a slowdown in demand for Indian products.
Interest Rates
The global see-saw in interest rates is impacting business investment and economic activity, creating headwinds for export growth.
Decline in Services Exports
The slowdown in the IT sector, primarily due to global tech layoffs and reduced client spending, has contributed significantly to the decline in services exports.
Scenario for Next 7 Months of Fiscal Year 2025
Q2 FY25
The next seven months (Q2 FY25) are expected to see continued growth in India's imports, driven by ongoing infrastructure development and industrial activity. The demand for raw materials, particularly crude oil, will likely remain elevated. However, exports may remain subdued due to global economic headwinds and a potential slowdown in global demand.FED interest rate cut expected to sustain demand which is sagging.
Q3 FY25
As the global economic environment improves and inflation eases, export growth is anticipated to gradually recover in Q3 FY25. The government's focus on promoting domestic manufacturing and boosting exports could lead to increased competitiveness and export opportunities. Nevertheless, the overall trade deficit may remain elevated due to persistent import growth.With FED interest rate cuts, demand revival may start kicking in and private investment capex may see real green shoots.
Q4 FY25
By Q4 FY25, the Indian economy is expected to be on a stronger footing, with improved consumer confidence and increased business activity. The government's initiatives aimed at improving the ease of doing business and fostering export competitiveness are anticipated to further contribute to export growth. This, combined with a potential moderation in import growth, could help narrow the trade deficit.FED rate cuts should crowd-in private investments.
India's Current Account to GDP ratio at less than (-)2% is still within manageable limits and will remain so atleast in the short term upto 2027.
This is a big positive for India as India is striving hard to contain its Oil imports dollar impact through various alternatives including increase of Ethanol content upto 20% in its Petrol and Diesel usage by FY26.
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