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Export credit by banks shrink nearly a quarter year-on-year at the end of October

Indian exporters
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Indian exporters are beginning to see the impact of slowing global trade on credit demand, with export credit by banks shrinking nearly a quarter year-on-year at the end of October, pointing to a further likely slowdown in overseas merchandise shipments.

After a gap of 19 months, exports contracted in October. Merchandise exports slipped below the level of $30 billion for the first time in the last 20 months. This marked a contraction of 16% on a sequential basis and a hefty 17% on an annualized basis.

 “Headwinds are visible in the global trade accentuated by geopolitical tensions, rising inflation, impending recession, and currency volatility,”

Yogesh Gupta, eastern region chairman of the Federation of Indian Export Organisations (FIEO).

He, however, attributed the contraction largely to the long holidays in October, expecting a rise in November.

 As shown by the data released by the Reserve Bank of India (RBI), the export credit from banks has seen a 25.1% dip to Rs 16,909 crore at the end of October 21, 2022, compared with what it was a year ago. This is in sharp contrast to a robust 18% overall bank credit growth.

 “The lack of liquidity is a big challenge for exporters. Bank insistence on collateral is depriving many MSMEs of credit. The share of exports credit in the total net banking credit is constantly moving downward,” Gupta said.

 As per economists, the weak global economic outlook would weigh heavily on Indian exporters more than anything else.

 They believe that with the slowdown in the world economy commencing, it will be hard for Indian exporters to foster growth in exports considering that USA and EU are two major markets besides China.

The US and Europe together account for about 34% share of India’s export baskets.

 A significant drag is also seen in the case of contraction in export demand (during April-September FY23 over the year-ago period) from other key export destinations such as China, Russia, Hong Kong, and Japan, experts said.

 As per Gupta, Indian exporters need to step up and get their act together to seize the opportunity in front of them after the space was vacated by China. He believes, that the stakeholder needs to understand that the opportunities may go away as soon as China bounces back from its zero-covid policies.

Gupta expects demand for Indian goods to rise in February-March 2023 if oil and gas prices do not throw upward surprises. Economists are not so optimistic.

 Exports will likely see a rebound only in 2024 as 2023 will be even less satisfactory than 2022 given that the recession will reach its nadir in 2023, economists said adding that with global commodity prices now coming down the value of exports will tend to get depressed further.

 The International Monetary Fund slashed 2023 world GDP and world trade forecasts by 20 bps and 70 bps to 2.7% and 2.5% respectively.

 A strong rebound in exports looks difficult, especially with commodity prices on a weaker footing. However, tailwinds to exports could come from the lagged impact of rupee depreciation along with traction in the Production Linked Incentive Schemes in some of the export-oriented sectors catering to demand from India’s non-traditional trade partners, such as ASEAN, LATAM, and African regions along with some tangible impact of recently inked trade pacts (with Australia, UAE) bearing fruition.