India's merchandise exports fell 12.7% on-year to $34.7 billion in April, following a 7.2% contraction the previous month. With this, India’s merchandise exports have now contracted for three consecutive months on an on-year basis. Though the decline in exports was broad-based (across oil, gold¹ and core²), gold and oil exports fell more than core, reflecting healthy performance in select core categories such as electronics, agriculture, and pharmaceuticals.

Interestingly, merchandise imports fell at a much faster pace than exports; down 14.1% on-year to $49.9 billion in April. Like exports, decline in imports, too, was broad-based, led by decline in gems and jewellery, followed by oil and core. However, some investment-related imports increased, confirming that domestic investment revival continues even as some other parts of the economy may be seeing demand moderation.

All said, it is important to keep in mind that a part of the slowdown, in both exports and imports, is attributable to the price effect as international commodity prices, which shot up because of the Russia-Ukraine conflict in February last year, are now correcting. However, the following two facts – 1) post-pandemic demand surge is normalising, especially as the impact of monetary policy transmission of rate hikes (both abroad and domestically) gathers pace, and 2) the expenditure focus currently remains on services – suggest that goods demand is bound to witness sluggishness going ahead.

With merchandise imports falling significantly and outpacing the decline in merchandise exports, the trade deficit touched a 20-month low of $15.2 billion in April, down from $18.6 billion in March and $18.4 billion in April last year. While the decline is merchandise trade favours the balance of trade, this could also be an indication of weakening domestic demand momentum, which is to be expected with real gross domestic product (GDP) growth this fiscalprojected³ to slow down to 6.0% from 7.0% in the last.

¹ Represents total gems and jewellery exports
² Represents total non-oil and non-gold exports
³ Crisil forecast