Slowdown in Oil, gems, and jewellery exports led to contraction in India's merchandise exports in July: Crisil

New Delhi [India], August 19: The weakness in oil, gems, and jewellery exports led to the contraction in India's merchandise exports in July, the market analytics and intelligence agency Crisil Ratings said in its latest report.

Another factor that contributed to the fall in merchandise exports in July was the high domestic demand for oil products, which led to an increase in imports and a decrease in exports.

The Crisil, keeping a positive outlook, said that the current fiscal year has started on a good note, with merchandise exports logging steady growth in the first quarter.

"The government's increased focus on foreign trade agreements should also provide thrust. While July saw a mild contraction in exports, whether this will sustain itself remains to be seen," Crisil added.

India's merchandise exports contracted in July by 1.5 per cent on-year, after rising steadily in the first three months of this fiscal. The country's merchandise exports in July stood at USD 33.9 billion.

The core export witnessed a surge of 5.7 per cent during the month, however, it was lower than the average of 8.7 seen in the previous two months.

The uptick in outbound shipments was led by electronic goods (37.3 per cent), meat, dairy and poultry products (56.2 per cent), oil meals (22 per cent), ready-made garments (11.8 per cent), spices (13 per cent) and tea (21.8 per cent) -- all of which logged strong growth on-year.

Categories such as gems and jewellery saw a decline of 20.4 per cent. The ceramic products and glassware contracted by 21.1 per cent. The organic and inorganic chemicals export declined by 12 per cent and rice by 15.3 per cent. Interestingly, exports of spices picked up after contracting in May on account of pesticide-related issues.

Growth in imports has been observed as it picked up 7.5 per cent on-year in July compared to the previous month which stood at 5.0 per cent, led by higher oil imports. Out of July's USD 57.48 billion imports, oil accounted for USD 13.87 bn or 24.1 per cent of total imports.

Due to the higher import growth compared to exports, the merchandise trade deficit widened to USD 23.5 billion from USD 19 billion in the previous fiscal year and USD 21 billion in the previous month. The trade deficit in July was the widest monthly trade deficit in nine months.

It is also noteworthy that the discount on Russian oil prices has declined compared to the previous fiscal year.

The Core imports (non-oil and non-gold) rose 7.8 per cent, compared to the 7.1 per cent growth logged in the previous month, suggesting strong demand in the economy.

On a cumulative basis, merchandise exports rose 4.15 per cent to USD 144.12 billion for the April-July period, from USD 138.39 billion in the year-ago period. Cumulative imports grew faster at 7.6 per cent to USD 229.7 billion from USD 213.53 billion, the report added.

As a result, the trade deficit widened to USD 85.6 billion from USD 75.14 billion in the previous year. Services exports were weaker, growing at 3.7 per cent in June, compared with 10.2 per cent in May.

However, the simultaneous slowdown in services imports resulted in a services trade surplus of USD 14.4 billion in June, higher than USD 12.4 billion in June last year and USD 14.3 billion in May, as per the report.