Merchandise exports rose 23% in September, the kind of growth India hasn’t seen in years. A cheaper currency, strong electronics shipments and lower gold imports helped. But oil still keeps the trade gap wide.
Here’s a number that would have seemed unlikely a year ago. India’s merchandise exports grew 23% in September.
Shipments of goods rose to $44.40 billion, up from $36.08 billion a year earlier, government data released on Thursday showed. Imports rose more slowly, by about 8%, to $74.61 billion. That narrowed the merchandise trade deficit to $30.21 billion from $33 billion in September last year.
Add in services, and the picture improves further. Total exports of goods and services rose about 11% to an estimated $80.75 billion. India’s services surplus, from IT, consulting and other business services, cut the overall trade deficit to $13.30 billion, down from $14.17 billion.
The July-to-September quarter set a record. Total exports reached an estimated $242.6 billion, the highest ever for a second quarter.
What gives?
The obvious answer is the rupee. The currency has fallen about 6.5% against the dollar this year and touched record lows near 97 before recovering slightly. A weaker rupee makes Indian goods cheaper for foreign buyers. Exporters earn more rupees for every dollar of sales, which gives them room to cut prices or invest in capacity.
That is the textbook case for a weak currency. In practice it rarely works so cleanly, because India imports many of the components and raw materials its exporters use. This time, though, it seems to be working.
Electronics and engineering goods led the way. Electronics in particular has become one of India’s fastest-growing exports, driven largely by smartphones assembled for global brands. That industry barely existed a decade ago.
The first half of the financial year tells the same story. Between April and September, merchandise exports rose 18.51% to $259.89 billion. Imports grew 16.31% to $437.53 billion.
The catch
A narrower gap from last year is not the same as a small gap. September’s deficit of $30.21 billion was actually larger than August’s $26.86 billion, because imports picked up more than exports month on month.
The reason, again, is oil. Crude has been expensive all year because of the conflict in West Asia, and India buys most of what it uses abroad. That cost flows straight into the import bill.
There is also a less flattering explanation for slower import growth. Imports of gold, silver, fertilisers and project goods fell sharply in September. Some of that reflects the weak rupee making imports pricier, which helps the trade balance but may also signal weaker demand at home. Fewer project goods, for example, can mean less investment in new factories and infrastructure.
For the rupee
Trade data is closely watched right now because the currency is under pressure. Foreign investors have pulled more than ₹3 lakh crore out of Indian shares this year. Every dollar India earns from exports helps offset that outflow.
The Reserve Bank of India has already taken steps to support the rupee, including restricting speculative trades and supplying dollars directly to oil companies. Strong export growth gives the central bank some breathing room. If it continues, it reduces how much the RBI has to intervene.
The next trade data is due on 16 November.
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