India's export orders are seen to dwindle as fears of a recession in the U.S. intensify.
Till four months ago, every time a sample was sent, a confirmation was received almost instantaneously, textile exporter Rajesh Masand said. Now, a revert is taking longer, and the quantity of the order placed has reduced. “There are signs of nervousness.”
Export orders placed six to eight months in advance are 15-20% down, Masand, president of the Clothing Manufacturers Association of India, told BQ Prime.
Rafeeque Ahmed, chairperson of Farida Group—that makes and exports footwear to 12 countries—concurred. His order book for the spring-summer season next year is down by 20-25%.
Orders for lifestyle products are as per season, Ahmed, former president of Federation of Indian Export Organisations, said. “The order book for the autumn-winter season is strong, and it's business as usual till these orders are due for delivery up to the first half of October. Then, orders for spring-summer that are due for delivery between mid-October and March are down 20-25% across brands for the U.S.”
Europe, he said, was anyway slow since Russia's invasion of Ukraine.
Ahmed's company had scaled up recently amid a surge in demand. Even now, work continues full throttle.
According to him, while the current order books are not an indication of what actual sales will be like, it does provide the perception that the season will see a slowdown, while high inflation is likely to impact purchasing power.
Importers are being cautious in placing orders, but they can always place more orders if need be, he said. “We will have to wait and see.”
When America Sneezes, Indian Exporters Catch A Cold
The headline exports data, however, is yet to reflect any downturn. It rose to $40.13 billion in June, up 3% over the previous month and 23.5% year-on-year, according to the commerce ministry.
But, engineering goods, comprising the largest component of India's merchandise exports, contracted 1.4% to $9.6 billion in June.
There are apprehensions of many advanced economies going into slowdown mode and in that case trade would certainly be impacted, Mahesh Desai, chairman of Engineering Export Promotion Council, said. The extent of the impact on the engineering export sector would depend on how long the global uncertainties continue.
According to Prahalathan Iyer, chief general manager, Export-Import Bank of India, a recession in the U.S. would lead to a fall in exports of jewellery, textiles, and other consumer-based items to the U.S. and other developed economies. Still, this recession might not be as severe as the previous one, so the economic impact might not be as high, he said.
While the pace of non-petroleum, and non-gems and jewellery exports has slowed a little bit, non-oil, non-gold imports appear to be strong, indicating that domestic manufacturing activity will continue to pick up even in the near term, Iyer said.
The U.S. remains India's largest exports market. According to the latest country-wise data available, exports to the U.S. in May 2022 were at $7.2 billion, making up for 18.4% of all of India's merchandise exports for the month.
In comparison, exports to the U.A.E.—the second-largest market for India—comprised just 6.4% of all merchandise exports.
But not everyone is seeing a hit though.
Vipul Shah, vice-chairman of Gem & Jewellery Export Promotion Council, said order flow for the industry continues to be strong, helped by the Comprehensive Economic Partnership Agreement between the U.A.E. and India that increased exports to the U.A.E.
But a supply crunch of diamonds in the industry persists because of Russia's invasion of Ukraine. For diamonds, Russia accounts for about 35% of the volume and 40% in carat terms, he said.
Shah, however, acknowledged that there's uncertainty over the future outlook.
The U.S. is a major market and if it goes into recession, exports will take a hit. China, too, is still exiting lockdowns and all countries are facing inflationary pressures, adding to the uncertainty over demand, said Shah.
According to Masand, the depreciating rupee, however, has helped offset the price rise of raw materials. Beyond that, even its benefits are limited. “After all, America is our biggest buyer.”
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