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India’s Merchandise Export Growth Holds Strong Amidst the Red Sea Crisis

Red Sea Crisis: In January 2024, India witnessed a notable surge in merchandise exports, marking a three-month high with a growth rate of 3.2% yoy, despite facing significant challenges such as the Red Sea crisis, subdued demand in advanced economies, and declining commodity prices. However, this positive development was accompanied by a marginal widening of the trade deficit to US$17.49 billion, compared to December’s figure of US$16.03 billion.

According to data from the commerce department, imports outpaced exports, with incoming shipments totalling US$54.41 billion, reflecting a robust 4.17% increase. Conversely, India’s exports amounted to US$36.92 billion, exhibiting improvement compared to the previous year’s US$35.78 billion for the same month.

Also read: India’s Economic Landscape: Mixed Signals in January 2024

The export growth trajectory could have been even stronger were it not for the disruptions caused by the Red Sea crisis, where Iran-backed Houthi rebels targeted commercial vessels, necessitating alternative, longer routes and consequently inflating freight costs and insurance premiums. To mitigate these challenges, the government implemented proactive measures, including urging banks to extend maximum credit facilities and ensuring stability in insurance rates. Collaborative efforts between the commerce department and relevant ministries were initiated, convening meetings to devise strategies aimed at navigating the challenging trade landscape.

The Red Sea’s significance in global trade cannot be overstated, with approximately 30% of container traffic and 12% of global trade traversing this route. India, heavily reliant on this corridor for its merchandise trade with Europe, faces substantial repercussions from the crisis.

While overall export growth is commendable, certain sectors experienced declines, notably gems and jewellery, readymade garments, manmade yarn, and jute. Conversely, sectors such as petroleum products, drugs and pharmaceuticals, electronic goods, and engineering goods exhibited positive growth.

Also read: India’s Trade Faces Turmoil Amidst Red Sea Crisis

Looking ahead, cautious optimism prevails regarding future export growth, particularly in the second half of the financial year. However, persistent uncertainties stemming from ongoing conflicts and disruptions in global trade routes necessitate prudent anticipation.

In tandem with merchandise trade, the services sector demonstrated resilience, with exports expanding by 17% to reach US$32.8 billion in January. This robust performance translated into a surplus of US$16.75 billion in services trade, underscoring the sector’s strength amidst challenging global conditions.

By Anamika Singh, StraCon Business Services