Will exports turn positive amid Red Sea crisis?

  • Industry News
  • Mar 19,24
Armed conflict in the Red Sea is affecting the global trade as the movement of goods has been hindered by the conflict since November last year
Will exports turn positive amid Red Sea crisis?

Armed conflict in the Red Sea is affecting the global trade as the movement of goods has been hindered by the conflict since November last year. As things stand, Indian exports have been impacted by a slowdown in global growth. The tightening of interest rates due to rising inflation, especially in advanced Western economies, has led to a slowdown in business, investment and trade. India's goods exports fell marginally to $36.92 billion in January 2024, from $38.45 billion in December 2023. However, on an annual basis, merchandise exports grew by 3.13 per cent during January.

In January 2024, India’s goods trade deficit narrowed almost 12 per cent compared with the previous month, as imports fell more steeply than exports. So far this fiscal (April 2023-January 2024), India’s merchandise exports stood at $ 353.92 billion, down 4.89 per cent annually, while merchandise imports stood at $ 561.12 billion, down 6.71 per cent annually. Overall trade deficit, including merchandise and services, stood at $ 70.43 billion during the April 2023-January 2024 period, down from $111.99 billion in the year-ago period.

To help exporters tide over the crisis, according to Commerce Secretary Sunil Barthwal, the government has informed the banks to extend credit to exporters, and Exim Bank and ECGC (Export Credit Guarantee Corporation of India) have been told to not increase insurance rates. This may bring a temporary relief to exporters.

About 30 per cent of Indian exports are routed through the Red Sea. After the start of Israel-Hamas conflict in October 2023, freight charges have been increasing raising concerns among exporters. While the initial shocks of the Red Sea crisis have been absorbed, it remains to be seen whether Indian exporters are able to share the rising freight charges with their customers when renegotiating contracts in April.

Besides, Indian exporters are facing the problem of non-tariff barriers from developed countries. The Indian government has created a task force to investigate the issues of non-tariff barriers, sanitary and phytosanitary issues with various countries, and find ways to push exports. 

Meanwhile, despite a difficult year, India's engineering goods exporters are still hopeful of ending 2023-24 in the black, with shipments to 13 major markets growing in January. Exports of engineering goods, which have accounted for a quarter of India’s merchandise exports in recent years, rose for the second straight month in January 2024, albeit at a slower pace of 4.2 per cent compared to 9.8 per cent in December. Cumulative exports so far this year now stand at $88.1 billion, just 0.2 per cent below the $88.27 billion recorded between April 2022 and January 2023.

The major drivers for the growth were iron and steel products, copper products and electric machinery, with demand from South Asia and Europe also propping up volumes. Surprisingly, exports to China (15.1 per cent) and Russia (30.8 per cent) witnessed a strong growth.

Though the government remains optimistic about India’s export nearly reaching the previous year’s record of $ 776 billion, in reality the task will be daunting in the face of cooling commodity prices and uncertain global demand.

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