India’s merchandise exports extended their declining streak to four months on the trot, shrinking 10.3% on-year to $34.9 billion in May after a 12.5% contraction the previous month.

The decline was led once again by oil exports, which slid 29.9% in May as international crude oil prices have come off their last-year highs, followed by a 12.7% decline in gems and jewellery exports.

Core exports, which exclude the above two categories, shrank a lower 4.0%, suggesting some resilience¹, as reflected in healthy performance in core categories such as electronics, iron ore, and select agriculture commodities. That said, the impact of weakening global demand is clearly visible in most other core export categories.

To be sure, the purchasing managers’s index (PMI) for the US and the eurozone, both key export destinations for India’s goods exports, have been indicating slackness in their manufacturing sectors.

Merchandise imports declined, too, albeit less than exports. At $57.1 billion in May, merchandise imports were down 6.6% on-year, led by gems and jewellery imports that fell 39.3% on-year. Oil imports fell much less (-6.0%), suggesting a combination of two factors at play: a) India has likely continued to buy discounted crude oil from Russia in large quantities, thereby keeping the overall oil import bill from falling too much, and b) domestic demand for the fuel remains buoyant.

Importantly, core imports returned to positive territory, growing 1.7% on-year, thanks to a surge in demand for investment-related imports such as machiney and project goods. This is in sync with healthy growth momentum seen so far in the first quarter this fiscal. RBI has forecast a growth of 8.0% in gross domestic product (GDP) in the first quarter.

With merchandise imports falling less than merchandise exports, the trade deficit perked up again, to a five month high of $22.1 billion in May from $15.1 billion in April and $16.4 billion on average during January-April 2023.

If imports remain robust for longer, India’s current account deficit, which likely fell below 2% in 2022-23, could see some pressure in the current fiscal.

¹Core exports were marginally up on-month in seasonally adjusted terms