Labour-Intensive Exports Hit Hard In Broad-Based Decline

Exports continue to ease, with labour-intensive exports seeing a sharper decline.

India's trade deficit narrowed to a 12-month low in January as a continuing decline in exports was accompanied by a decline in imports this time around. The trade deficit narrowed to $17.75 billion in January, compared with $23.76 billion in December 2022, according to data published on Wednesday.

Exports contracted by 6.6% to $32.91 billion year over year, while imports contracted by 3.6% to $50.7 billion year over year. On a sequential basis, exports contracted by 4.6% in January, while imports contracted by 13%.

Under merchandise exports, 16 of the top 30 major commodities were contracted in January 2023 on an annual basis. Among the largest, gems and jewellery saw the sharpest decline, falling by 19.28% in January 2023, compared to a year ago. Since the start of the fiscal year, gems and jewellery have seen a decline of 1.7%.

Engineering goods saw a decline of 3.7% between April 2022 and January 2023.

In value terms, the sequential decline in imports was predominantly on account of petroleum products, transport equipment, gems and jewellery, chemicals, and ores and minerals. Cumulatively, they were lower by $7.5 billion and accounted for 79% of the sequential fall in headline imports vis-à-vis December 2022, stated a research note by QuantEco Research.

Cotton yarn, fabrics, and handloom products saw the sharpest fall across the top 30 commodities, declining by 37.4% on an annual basis.

The decline in exports during the month is a reflection of the global slowdown, continued geo-political tensions between Russia and Ukraine, tightening global financial conditions and contraction in demand, said A Sakthivel, president at FIEO. High inventories and volatility in currencies have further added to this challenging situation.

The engineering exports sector has been witnessing a downward trend for the last nearly seven months in the current financial year, primarily due to weak demand from key markets including China, Arun Kumar Garodia, chairman of the Engineering Export Promotion Council, said.

While the implementation of FTAs with the UAE and Australia, production-linked incentive schemes, and policy actions by the government have helped the sector, new risks such as higher interest costs have emerged, Garodia said.

The global economic and trade outlook is certainly not bright, he cautioned, and 2023 is projected to be a tough year.

India’s exports of labour-intensive items, from gems and jewellery to textiles and handicrafts, continue to be under pressure, delivering a double blow at a time when exports are decelerating.

A drop in outbound shipments from these sectors also impacts more jobs, which are provided by small and medium-scale units in these industries.

Labour-intensive exports contracted between April 2022 and January 2023, according to data from the Ministry of Commerce compiled by BQ Prime. For analysis, gems and jewellery, textiles, handloom products, leather, handicrafts, and carpets were classified as labour-intensive industries.

Except for leather, all labour-intensive exports saw a fall.

A lot of these products fall under the discretionary category, and in a rough economic environment, consumers usually first cut back on discretionary consumption, Teresa John, economist at Nirmal Bang, explained.

The demand for gems and jewellery may start firming up ahead of the seasonal demand, although record high prices may mute the adverse impact on the gems and jewellery deficit, the note by QuantEco Research said.

Low-tech exports like leather fell sharply year-on-year, while medium-tech exports like chemicals remained weak, Pranjul Bhandari, chief economist at HSBC, said. On the other hand, high-tech goods exports like electronics remained relatively buoyant while service exports continued to soar.

"This is in line with our finding that, since 2017, India has gained global market share in high-tech exports," she said. Unfortunately, it is losing market share in low- and medium-tech exports, she added.