Union Minister of Commerce and Industry Piyush Goyal. File
| Photo Credit: PTI

We are very confident that the Indian economy is poised for both healthy and organised growth and providing opportunities to lakhs of people across India, Union Minister Piyush Goyal said

Healthy increase in the country’s exports, improvement in the current account deficit (CAD) and focus on expanding manufacturing will help the Indian economy register a healthy growth rate, Union Commerce and Industry Minister Piyush Goyal has said. He was here to participate in a programme of the gems and jewellery industry.

The Minister expressed confidence that India’s goods and services exports would cross $800 billion this fiscal. It was $778 billion in 2023-24 and USD 776 billion in 2022-23.

Mr. Goyal said that the mood amongst industry and exporters is “wonderful” and a “very great” sense of confidence is there among the investors about the India growth story.

“I think this year we will end with over $800 billion exports…We also focus a lot on expanding our manufacturing capacities, so that our import dependencies can come down and CAD is also showing healthy improvement in the last few months. We are very confident that the Indian economy is poised for both healthy and organised growth and providing opportunities to lakhs of people across India,” the Minister told PTI.

S&P Global Ratings has retained India’s GDP growth forecast for the current financial year at 6.8% and said high interest rates and lower fiscal spur would temper demand.

While another rating agency Fitch estimates India’s growth at 7.2% in FY25, the Asian Development Bank (ADB) estimates India’s GDP to grow at 7%.

Moody’s Ratings and Deloitte India estimates India’s GDP to grow at 6.6% in 2024-25 fiscal, while Morgan Stanley projects a growth rate of 6.8%.

When asked if the Ministry is looking at bringing an amendment bill on special economic zones (SEZs), Mr. Goyal said that several suggestions are on the table and are under consideration.

India recorded a current account surplus of $5.7 billion or 0.6% of GDP in the March quarter. This is the first time in ten quarters that the crucial metric of the country’s external strength has turned into surplus mode.

In the year-ago period, the current account deficit stood at $1.3 billion or 0.2% of GDP, and the same was $8.7 billion or 1% of GDP in the preceding quarter ending December 2023.

India’s merchandise exports rose by 9.1% to $38.13 billion in May even as the trade deficit widened to a seven-month high of USD 23.78 billion during the month, according to the latest government data.

The textile sector grew 9.8% in May, after months of sluggishness. File
| Photo Credit: M. Periasamy

India’s goods exports grew 9.1% to $38.13 billion in May, while imports rose 7.7% to $61.91 billion, Commerce Secretary Sunil Barthwal said on Friday, stressing that things are looking “more optimistic for foreign trade this year”. Even the textiles sector recorded a healthy growth of nearly 10% in May “after several months of sluggishness”, he noted.

However, despite exports growing faster than imports, the merchandise trade deficit surged to a seven-month high of $23.78 billion in May. This was 5.5% higher than the deficit recorded in May 2023, and 24.5% over April’s trade gap of $19.1 billion, which in turn was the highest in four months. Compared with April, May’s import bill was 14.4% higher, while the value of exports rose 8.9%.

Asked if the rising trade deficit could pose a problem, Mr. Barthwal told The Hindu that the trend must be seen in the context of India growing faster than the world, insisting that goods trade deficits should not be viewed in isolation.

High growth, high demand

“Our economy is growing over 7%, while the global economy is growing at about 2.6% so there will always be higher demand from our country for imports of certain kinds of items. When your economy is growing faster than the world, then obviously there will be these twin effects — higher domestic demand will mean less exportable surplus, and your requirements for imports from the rest of the world will be higher than the world’s requirements from you,” he noted.

“The deficit trends will depend on two factors — import substitution and the rate of economic growth. But I don’t consider trade deficit per se as a bad thing, as long as you have foreign investment coming in through FDI, foreign exchange coming in, and you are balancing it through other means. Moreover, if our services exports are growing, we should not be unnecessarily worried about merchandise trade deficit alone,” the Commerce Secretary asserted.

The top Commerce official also highlighted the healthier 7.4% growth in exports of engineering goods in May, with double-digit increases in several segments, including electronics (23%), drugs and pharma products (10.45%), and plastics and linoleum (16.6%).

“We hope this trend should continue this year and also hope that there should be no more geopolitical conflicts and no more disruptions in major global shipping routes,” Mr. Barthwal said.

‘Deficit driven by oil’

Imports of gold hit a three-month high of $3.33 billion in May, although this was 9.7% lower than the gold import bill a year ago. Gold imports had tripled year-on-year in April to $3.11 billion. The value of silver imports shot up by over 400%, while the growth in imports of pulses (181.3%), transport equipment (31.9%), and petroleum (28.1%) also contributed to widening the chasm between exports and imports.

ICRA chief economist Aditi Nayar reckoned that 71% of the month-on-month surge in the trade deficit was driven by the net oil balance. While petroleum imports were $19.95 billion in May, the export figure stood at $6.77 billion.

“With the deficit enlarging by $6 billion in April-May 2024 relative to last year, we expect the current account deficit to rise to around 1.5% of GDP in this quarter from about 1.1% of GDP in the same quarter of 2023-24,” Ms. Nayar said.

Image for representation.
| Photo Credit: The Hindu

The Netherlands has emerged as India’s third largest export destination after the U.S. and UAE during 2023-24, even as the country’s merchandise shipments dipped by over 3%, according to the Commerce Ministry data.

The main commodities which registered healthy exports growth in the Netherlands include petroleum products ($14.29 billion), electrical goods, chemicals, and pharmaceuticals in the last fiscal.

India’s trade surplus with the Netherlands has increased to $17.4 billion in the last fiscal from $13 billion in 2022-23.

The Netherlands has taken over major destinations such as the U.K., Hong Kong, Bangladesh and Germany.

India’s exports to the Netherlands rose by about 3.5% to $22.36 billion in 2023-24 as against $21.61 billion in 2022-23, the data showed.

In 2021-22 and 2020-21, the outbound shipments to the European country stood at $12.55 billion and $6.5 billion, respectively.

The exports have been registering healthy growth continuously since 2000-01, when India’s exports to that nation were $880 million.

Further, in 2021-22, the Netherlands was the fifth largest destination for Indian exports as against the ninth largest in 2020-21.

According to trade experts, the Netherlands has emerged as a hub for Europe with efficient ports and connectivity with the EU through roads, railways and waterways.

Mumbai-based exporter and Chairman of Technocraft Industries Sharad Kumar Saraf said the trend of increasing exports would continue in the future also.

Saraf said that the Netherlands is a gateway to Europe as its ports are very efficient.

India and the Netherlands established diplomatic relations in 1947. Since then, the two countries have developed strong political, economic and commercial relations.

In 2023-24, the bilateral trade between the two countries marginally dipped to $27.34 billion as against $27.58 billion in 2022-23.

The Netherlands is among the top trading partners of India in Europe, after Germany, Switzerland, the U.K. and Belgium.

It is also a major investor in India. During the last fiscal, India received about $5 billion in foreign direct investment from the Netherlands. It was $2.6 billion in 2022-23.

There are over 200 Dutch companies present in India, including Philips, Akzo Nobel, DSM, KLM and Rabobank. Similarly, there are more than 200 Indian companies operating in the Netherlands, including all the major IT firms such as TCS, HCL, Wipro, Infosys, Tech Mahindra as well as Sun Pharmaceuticals and Tata Steel.

Major shipping lines are avoiding the Suez Canal and are rerouting vessels around the Cape of Good Hope, which has increased time and costs for exporters. File
| Photo Credit: KK Mustafah

Sustained disruptions in the Red Sea route is likely to raise the freight and forwarding (F&F) cost by 25-30% for corporates largely dealing in international trade, a report by credit ratings agency Ind-Ra said on February 9. Moreover, the working capital cycle is likely to aggravate by 15-20 days, and the impact could be higher for sectors such as agriculture and textiles, report said.

Working capital cycle refers to the period between payments made to suppliers and revenue received from sales.

Med-sized entities to be hit

The report also said that pressures on cash flow, although moderate for large entities, will further increase borrowings, especially for sectors such as iron and steel, auto and auto ancillaries, chemicals and textiles, which have seen a year-on-year rise in net leverage in the first half of the current fiscal.

“The challenge is significant for the entities having low value addition therefore thin margins. Although large entities have adequate elbow room to accommodate such incremental cost, delays and disruptions in supply chains will be key factors to watch for,” said Soumyajit Niyogi, Director, Core Analytical Group, Ind-Ra.

For medium-sized entities, he said, the challenge is two-fold, both cost and supply, and consequently on working capital cycle. “These entities have not benefited much from the softening of commodity prices, as free cash flow has remained sluggish for most of them,” he stated.

The initial reaction can be seen in freight rates rising by 150% in the past 45 days, the rating agency said. The route constituted 40% of the total oil imports and 24% of the total exports during April to October 2023, it said.

Major shipping lines have rerouted vessels around the Cape of Good Hope, which has increased time and costs, impacting both exports and imports, as per the report. This detour adds 12-15 days to voyages on a business as-usual basis; however, there could be a further delay owing to any sudden operational challenges, it said.

This detour is directly translating to a higher operational cost, along with freight and insurance and intermittent disruptions on account of ship size and cost dynamics. Although these disruptions have historically been short lived, a swift resolution seems improbable given the geopolitical standing, Ind-Ra said.

Important trade route

As much as 20-25% of India’s foreign trade is routed through the Suez Canal, with key products such as crude oil, auto & auto ancillaries, chemicals, textiles and iron & steel being affected. Indian exports are facing higher shipping costs due to rerouting, leading to reduced export volumes, affecting small and medium-sized enterprises dealing with a high volume of low-value products.

On the import side, vital commodities such as crude oil, fertilisers, and electronic components face inflated costs due to the crisis, leading to higher landed prices and inflationary pressures, impacting various sectors of the Indian economy, the ratings agency said.

Workers packing bananas for export at a packaging unit near Chinnamanur in Theni district, Tamil Nadu.
| Photo Credit: KARTHIKEYAN G

With successfully exporting a trial shipment of fresh bananas to the Netherlands through sea route, India is now aiming to increase exports of this fruit to $1 billion in the next five years, an official said.

At present, exports of most of the fruits from India are happening by air route because of lower volumes and different ripening periods.

To increase the volumes, India is developing sea protocols for fresh fruits and vegetables like bananas, mangoes, pomegranates and jackfruit to promote their exports through ocean routes.

The protocol includes understanding voyage time, scientifically understanding the ripening of these commodities, harvesting at a particular time and training of farmers. These protocols will be different for different fruits and vegetables.

The Agricultural and Processed Food Products Export Development Authority (APEDA), along with other stakeholders, has developed these protocols for bananas. APEDA is an arm of the Commerce Ministry.

“With the successful trial shipment, India aims to export bananas worth over USD one billion in the next five years, opening doors to a diversified market portfolio through sea route,” the official said.

The trial shipment reached Rotterdam, Netherlands on December 5. The consignment was shipped from Baramati, Maharashtra.

India’s banana export destinations extend beyond the Middle East, with potential opportunities in major global players like the U.S., Russia, Japan, Germany, China, the Netherlands, the UK, and France, the official added.

Despite being the world’s largest banana producer, India’s export share is currently just one per cent in the global market, even though the country accounts for 26.45 per cent of the world’s banana production at 35.36 million metric tonnes.

In 2022-23, India exported bananas worth $176 million, equivalent to 0.36 MMT.

The main banana producing states include Andhra Pradesh, Maharashtra, Karnataka, Tamil Nadu, and Uttar Pradesh.

Assistant Professor and expert on Agri Economics Chirala Shankar Rao said that huge export potential for bananas is there from Andhra Pradesh.

APEDA’s continuous efforts, including B2B exhibitions and the development of sea protocols for other fruits, highlight a proactive approach to boost India’s agricultural exports, the official added.

Representational file image
| Photo Credit: K.R. Deepak

India’s goods exports shrank for the seventh successive month in August, but the pace of decline eased to 6.86% from double digit contractions in recent months, with shipments worth $34.5 billion in the month.

The merchandise Import bill for August dropped 5.23% year-on-year to $58.64 billion, but was 10.85% higher than July’s $52.9 billion import tally.

Officials said that nearly half of the decline in exports so far this year was driven by the decline in petroleum prices, noting that though export volumes of petroleum products were up 6%, prices were 27% lower than a year ago.

The trade deficit for August dropped 2.8% from last year to $24.16 billion, but was almost 17% over July’s $20.67 billion gap between goods imports and exports.