Prasenjit Basu and Laavanya Sisaudia, analysts and economists at ICICI Securities, said, “Given the broad based cyclical rebound in engineering goods, textile and pharmaceutical exports, we expect merchandise exports of India to accelerate further through the rest of FY24 and into FY25.”
India’s merchandise exports were up 6.2 per cent YoY in October 2023 and 2.4 per cent on YoY basis in Aug-Oct’23 period, recovering slightly ahead of the rest of Asia’s exports, said a report by ICICI Securities. South Korea’s exports grew by 5.1 per cent on-year in October 2023 after 13 consecutive months of contraction, while Taiwan’s exports declined only 2.8 per cent YoY in Aug-Oct’23, although they were down 12.8 per cent YoY in Jan-Oct’23. China, however, was a slight exception with its goods exports declining 8.2 per cent YoY in Aug-Oct’23, worse than its Jan-Oct’23 contraction of 5.2 per cent YoY, similar to India’s 4.9 per cent YoY decline for Jan-Oct’23.
Prasenjit Basu and Laavanya Sisaudia, analysts and economists at ICICI Securities, said, “Given the broad based cyclical rebound in engineering goods, textile and pharmaceutical exports, we expect India’s merchandise exports to accelerate further through the rest of FY24 and into FY25.”
Even as US import demand in Jan-Sep’23 weakened, it is now rebounding from its troughs even with the broad US economy weakening now, and this recovery in US and OECD demand will benefit Asia’s exports (including India’s).
CAD to shrink to 0.4 per cent of GDP in FY24E
With services exports continuing to strongly outpace services imports, India’s services trade surplus expanded 21.7 per cent YoY in Apr-Oct’23. Further, since the merchandise deficit also declined by 12 per cent YoY, the current account deficit (CAD) is likely to have narrowed to about 0.7 per cent of GDP for the period, said ICICI Securities. “The final quarter of the fiscal year is usually the strongest for the current account balance, so we expect the CAD to shrink to 0.4 per cent of GDP for FY24 – assuming that Brent crude oil averages $90/bbl in the Dec’23-Mar’24 period. Should Brent settle near its current levels (USD 80.5/bbl), a current account surplus will be the likely outcome in FY24,” the analysis report stated.
Exports, imports likely to strengthen in FY25
With Asia’s economies strengthening and the US Fed beginning to ease monetary policy by mid-CY24, the merchandise export recovery is likely to gather pace, said ICICI Securities. Nonetheless, it added, a cyclical recovery in the global economy (other than China) will still result in mildly higher commodity prices. Given the likely strengthening of Indian import demand next year, the CAD is likely to remain slightly below 1 per cent of GDP in FY25 despite the expected rebound in exports.
Services exports grow at a modest pace
Based on the RBI data, India’s services exports grew 9.1 per cent YoY in Jul-Sep’23 (Q2FY24), while services imports declined 3.5 per cent YoY – compared with 6.2 per cent YoY and -1.2 per cent YoY respectively in Q1FY24. Including the Oct’23 estimates, the services trade surplus in Apr-Oct’23 widened by 21.7 per cent YoY, thus continuing to contribute to a YoY reduction of the current account deficit (CAD).
Cotton textile exports accelerate sharply, synthetics resume growing
Cotton textiles began rebounding in Jul’23, and have accelerated notably in Aug-Sep’23 (+26.7 per cent YoY) and Oct’23 (+36.5 per cent YoY). Synthetic textiles also resumed growing in Oct’23 (+10.2 per cent YoY), but garment exports were still contracting.
Pharma exports strengthen; refinery, jewellery past their cyclical trough
The pharmaceutical sector has seen steady export growth over the past eight years, and accelerated to 29.3 per cent YoY growth in Oct’23 – taking their growth for Apr-Oct’23 to 8.1 per cent YoY. Petroleum product exports, however, still declined 4.65 per cent YoY in Oct’23 (and -16.2 per cent% YoY in Apr-Oct’23), while jewellery exports declined 9.8 per cent YoY in Oct’23, and 22.3 per cent YoY in Apr-Oct’23. Yet both are well past their cyclical trough and close to resuming at least modest growth, the ICICI Securities analysis stated.
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