Though slower growth, particularly in key trading partners like Europe, is dampening the demand for India’s exports, a decline in global commodity prices from their post-Ukraine conflict highs offers some relief, according to the latest monthly economic review of the economic division of India’s finance ministry.
While import volumes have increased substantially, a fall in international commodity prices has brought down the overall value of imports.
The rise in the volume of imports reflects India’s sustained domestic demand for imports driven by a rapidly growing and expanding economy, it noted.
India’s manufacturing sector registered double-digit growth in the third quarter (Q3) of fiscal 2023-24 (FY24), driven by a surge in investment, improved investor confidence and strong domestic demand conditions, the review said.
The strength of the manufacturing sector is also underscored by the India manufacturing purchasing managers’ index (PMI), which, as of December last year, stood at five-months high of 56.9, supported by new orders and favourable demand conditions.
This has been partially led by improved domestic demand and a decline in the inventory of finished goods. The volume indicators like the index of industrial production and the index of eight core industries have also observed growth of 5.8 per cent and 8.4 per cent respectively during Q3 FY24.
Though rejuvenating demand scenarios in the advanced economies are expected to have a positive impact on India, the country may face a sectoral impact on agricultural commodities, marine products, textiles and chemicals, capital goods and petroleum products due to the Red Sea crisis.
To effectively address these challenges, there may be a need to diversify trade routes and transportation options. That would increase transit costs and affect the price competitiveness of Indian merchandise exports, the review added.