Industry And Cluster | News & Insights

Exports shrink as global tariff war takes toll on Indian trade.

Published: July 18, 2019
Author: TEXTILE VALUE CHAIN

Exports contract for first time in 9 months in June as US-China tariff war affects shipments.

India’s exports shrank for the first time in nine months in June as global trade tension hit shipments and the country braced for the impact of the US withdrawing some benefits. Exports shrank 9.71% last month to $25.01 billion while imports declined 9.06%. The trade deficit narrowed to $15.28 billion from $16.6 billion a year ago, data released by the government showed. Exports to China fell by a sharp 14.1% as the country struggled with the impact of the trade war with the US — its GDP growth slowed to a 27-year low of 6.2% in the June quarter. India’s shipments to the United Arab Emirates fell 15.31% and those to Hong Kong dropped 9.68% in June.

“The decline in exports in June is due in large part to a base effect of an extraordinarily good month in June 2018,” said commerce secretary AnupWadhawan, adding that the decline was also consistent with certain global trends, which have impacted exports in recent months. “The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries,” US President Donald Trump tweeted.  The decline in crude prices also weighed on petroleum exports. The last time exports contracted was in September 2018, when they fell 2.15%. Data showed a decline in shipments for 21 out of 30 sectors with the steepest fall registered in gems and jewellery, engineering goods and petroleum products in June. Healthy exports are key to the government’s plan to revive the economy. “The temporary shutdown of ONGC Mangalore Petrochemical Ltd for maintenance has adversely impacted exports of Petrochemical Ltd for maintenance has adversely impacted exports of petroleum products,” the commerce ministry said in a statement. “Jamnagar refinery also experienced a routine maintenance related disruption in June 2019.”

GLOBAL SLOWDOWN

Global trade is projected to grow at 2.6% this year — a full percentage point below the previous forecast. China’s June exports fell 1.3% while imports shrank 7.3%, explaining the sharp drop in shipments from India. “This is a reflection of sluggish global demand and rising tariff war,” said Federation of Indian Export Organisations president Sharad Kumar Saraf. “The high exports base of June 2018 contributed in no less measure. The softening of crude and steel prices also pulled down exports.”

The US-China trade war and developments in Iran further aggravated the situation, he said. Wadhawan said there is a likelihood of exports improving in the coming months. Engineering goods have affected because of a fall in the global prices of steel, according to the ministry. Oil imports declined 13.33% to $11.03 billion while gold imports rose 13% to $2.69 billion from the year earlier. The increase in customs duty on gold in the budget could dampen imports. Electronics goods, another major import item, saw a 1.66% decline in June. Non-oil and non-gold imports fell 9% to $26.5 billion, indicating weak domestic demand.

US IMPACT

The US terminated preferential tariffs to India under the Generalized System of Preferences (GSP) effective June 5. While officials had said the move will not have an immediate impact on India’s exports, experts said there are some signs of this. “Though it is too early to comment on the GSP impact, a decline in gems and jewellery exports signal towards that trend because this is a major item of export to the US and UAE,” said a Delhi-based expert on trade issues, adding that the opportunity for India to increase exports to the US due to the latter’s trade war with China seems to have been lost.

In a report last month, rating agency Crisil said that the withdrawal of GSP will affect exporters of gems and jewellery the most with around 15% of these having availed of the benefits in 2018. “Now there will be an additional duty of 7% on exports of precious metal-based and imitation jewellery,” the rating agency had said. “That will reduce competitiveness of domestic exporters and put pressure on margins.”

Related Posts