Strong July exports reflect resilience, but widening trade deficit poses external sector challenge: Experts
New Delhi, August 14
India's strong export growth despite global trade and geopolitical headwinds reflects the resilience and diversification of its exporters, but rising imports and a widening trade deficit could pose a challenge to the external sector in the coming quarters, industry representatives and economists said.
ICRA Chief Economist Aditi Nayar said merchandise exports and imports expanded in double digits for the fourth consecutive month in July, with higher commodity prices contributing to the rise in trade values.
Merchandise imports touched a nine-month high, driven by more than 20 per cent growth in coal, fertilisers, electronic goods and chemical materials and products.
The merchandise trade deficit widened to a six-month high of USD 32 billion in July from USD 27.9 billion a year earlier, Nayar said, while also exceeding the average monthly deficit of USD 29 billion recorded in the first quarter of FY27.
"While we expect a marginal CAD of ~0.2% of GDP in Q1 FY2027, the same is expected to widen sharply to ~2.0% of GDP in Q2 FY2027," Nayar said.
She expects the current account deficit to stand at around 0.9 per cent of GDP for the full financial year, which she said is likely to be comfortably financed amid measures to attract capital flows.
The assessment comes even as merchandise exports rose 19.63 per cent year-on-year to a record USD 44.24 billion in July, according to government data.
Engineering goods exports grew 17.8 per cent year-on-year to USD 12.24 billion in July and 18.2 per cent to USD 46.38 billion during April-July, with engineering exporters adapting to emerging challenges by diversifying their products and markets, EEPC India Chairman Pankaj Chadha said.
Commenting on the ongoing West Asia crisis, he said, "We are hopeful of navigating the crisis and registering positive growth in the coming months."
"The positive impact of the India-Oman free trade pact is already visible, and the free trade pact with the UK is expected to give a further push to exports. Together, they would partly offset the negative trend seen in some of the traditional markets," he added.
FIEO President S C Ralhan said the export performance demonstrated the resilience and adaptability of Indian exporters despite trade challenges, shipping disruptions and higher transportation costs.
"The over 19 per cent growth in merchandise exports in July is an outstanding achievement and a strong testimony to the resilience, competitiveness and adaptability of Indian exporters," Ralhan said.
He said non-petroleum exports rose 12.79 per cent during April-July, with engineering, electronics, pharmaceuticals, chemicals and textiles contributing to the momentum. He also called for greater focus on MSMEs and labour-intensive sectors to translate export growth into wider economic benefits.
Ralhan further called for continued policy support, competitive export credit, easier working capital, faster trade facilitation and attention to shipping and logistics challenges. He also stressed the need for greater market and product diversification as global trade conditions remain uncertain.
— ANI
Reader Comments
Impressive export numbers from India! The engineering sector growth and diversification to new markets is commendable. The India-Oman and UK trade pacts seem promising. But the trade deficit is a real concern that needs addressing.
19.6% growth in exports is definitely encouraging, especially with all the geopolitical tensions around. But we can't ignore that higher commodity prices are inflating the trade figures. If prices drop, will we still see this growth? Need more sustainable policies for MSMEs and labour-intensive sectors as FIEO said.
The current account deficit projection of 0.9% of GDP seems manageable. India's external position remains one of the strongest among emerging markets. The focus on diversifying exports and new trade agreements is a smart strategy in these uncertain times.
Great to see engineering exports growing 17.8%! But the 20%+ increase in coal, fertiliser and electronics imports shows we still depend heavily on other countries. Make in India needs more push in these sectors. Also, why is there such a huge jump in chemical imports? We have the capability to produce more domestically.
The trade pact with UK will be a game changer! Also, the way Indian exporters have adapted to the West Asia crisis shows real resilience. But we need to ensure that the growth benefits reach small businesses too, not just the big players. Support for MSMEs is crucial for inclusive growth. 🙏
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