India's Exports See Weaker Outlook Amid Global Cues, Geopolitical Risks

Weaker US data and fresh geopolitical conflicts could have adverse effects on growth of exports.

(Source: Freepik) 

Merchandise exports have seen a rise in the first quarter of fiscal 2025, compared to a year ago, led by most major items. However, a combination of weaker growth in the United States, along with fresh geopolitical adversities, might dent future growth prospects.

India's merchandise exports rose by 6% in the April-June quarter, while services exports increased by 12%. India has become one of the drivers in global exports growth, which is expected to sustain given positive global growth and tapering inflation. However, weaker US data and fresh geopolitical conflicts could have adverse effects.

The US jobs data last week showed a marked slump in hiring and a three-year high in unemployment, hinting at higher chances of economic slowdown. The US remains India's largest export destination, accounting for slightly less than a fifth of India's merchandise exports.

Over the last few years, the US economy has become so much more important from an external demand point of view, for not just India but for other Asian economies too, said Dhiraj Nim, economist at ANZ Research.

Headwinds the Indian economy could face from the US slowdown could also mean weakness for Asian economies including India and that could temper the export momentum a bit, he said.

Recent data coming out of the US indicates that this could be a bigger risk than factored in so far. This could impact both goods and services exports, Nim said.

The US recession might only have limited impact, according to Aditi Gupta, economist at Bank of Baroda. India's merchandise trade partners are gradually increasingly diversified, while production linked incentives and other government export promotion schemes have also helped, she said. Services exports drove growth even in the pandemic and are unlikely to see a steep decline in the event of a recession, she added.

Also Read: FIIs To Boost Indian Markets Due To Favourable Business Environment, Says Edward Yardeni

Political Instability, Geo-Political Skirmishes Add Woes 

Closer home, Bangladesh Prime Minister Sheikh Hasina was forced to flee the country, amid a movement demanding her ousting. The political developments in the country are a significant concern for Indian engineering exporters, according to Arun Kumar Garodia, chairman of Engineering Export Promotion Council of India.

As one of the top destinations for Indian engineering products and our largest trading partner in South Asia, stability in Bangladesh is crucial for maintaining and expanding trade relations, he added. The country is among India's top 10 largest export destinations and accounts for about 2% of India's merchandise exports. The total value of engineering goods exported to Bangladesh during the April-June period of the current financial year stood at $ 542.1 million, down 8.2% year-on-year.

Meanwhile, assassination of a Hamas leader in Tehran has also renewed concerns of an escalation in conflict in the middle-east, preventing oil prices from sliding despite chances of softer demand in the US.

Crude oil prices will continue to require close monitoring, in the event of sustained price rise in the middle of geopolitical turmoil, Gupta said.

The weakening bias for the rupee could help bolster the export impact to a marginal extent, Nim said.

Also Read: Services PMI Remains Buoyant Even As Rising Costs Push Up Inflation

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WRITTEN BY
Pallavi Nahata
Pallavi is Associate Editor- Economy. She holds an M.Sc in Banking and Fina... more
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