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On May 15th, Santosh Kumar Sarangi, the Director General of Foreign Trade (DGFT) of India, suggested that Indian exporters diversify into products with higher export demand. He made this recommendation while addressing the media in New Delhi during the release of trade data for April 2023. The data revealed a 12.7% contraction in exports, reaching a 20-month low in the trade gap (the difference between export and import values). In April, the value of exports declined to $34.66 billion, while the trade deficit decreased to $15.24 billion.

When asked about the poor export performance in April and the timeline for recovery, Sarangi reportedly stated, “The demand scenario is not looking promising, particularly in Europe and the US where we have observed a decline in demand. I do not anticipate an optimistic demand scenario for the next 2-3 months.” However, he remained optimistic about the future, stating that things would change from September onwards. Sarangi reportedly said, “There is a possibility that the opening up of the Chinese economy, combined with a boost in demand from Europe and the US economies from August-September onwards, might enhance global exports.”

Sectors of concern

According to the DGFT, potential diversification options for exports include electronic goods, oil meals, oil seeds, and agricultural goods. Sarangi also expressed concerns about imports of certain goods in the coming months, highlighting the export sectors that might be impacted, such as gems and jewelry, apparel and garments, and certain engineering products. In April, petroleum products showed negative growth in imports. The trade data for April indicated that out of the 30 core export sectors, only 11 exhibited positive growth, while import growth has been slowing down, with 23 out of 30 core import items experiencing negative growth. Crude oil and gold imports witnessed the sharpest decline in April.

The importance of the foreign trade sector in India

The foreign trade sector, comprising both export and import sectors, accounts for approximately 45% of India’s GDP. Its significance has increased over time, with the ratio rising from 12-15% in the 1980s to 27% between 1990 and 2000. The ratio reached its highest level of 50% during 2011-2013 and stood at around 45% in the last fiscal year, 2020-21. Consequently, any impact on this sector, whether due to internal or external factors, would have a significant overall negative economic impact. Economists measure an economy’s GDP by aggregating four components: total consumption expenditure, investment expenditure, total governmental spending, and the total foreign trade sector (export value minus import value). Among these components, total consumption expenditure constitutes the largest share, accounting for approximately 55% of India’s total GDP. The share varies from country to country and depends on the existing economic conditions. The share of exports alone accounted for 21.4% of the overall GDP in 2021. Therefore, no government can afford a slowdown in the export sector, which employs many skilled and semi-skilled workers, particularly in the MSME sector. The MSME sector is a major employer and exporter in India. The Government of India must address this matter promptly and implement appropriate policies, as exporters cannot afford to wait for an extended period in such uncertain circumstances.

Can the Apparel Exporters’ Problem be solved by increasing domestic sales?

According to reports (Economic Times, May 17th), apparel manufacturing units in Tirupur and Noida are planning to temporarily shut down their operations for 10 to 15 days per month until export orders recover. They aim to reduce costs while maintaining the labor force without resorting to job cuts. Around 80% of Noida units have only one month’s worth of orders, while orders in Tirupur units have fallen to 40-50%. The Tirupur cluster is considered Asia’s largest textile export hub. With limited winter orders and a need to wait for spring-summer orders for the next year, some observers suggest allowing exporters to produce a larger portion for the domestic market, at least temporarily.