As 2023 commences, we take this opportunity to look beyond usual export statistics and evaluate how the enabling environment appears from the perspective of sentiment, finance, and expectations from the upcoming Union Budget 2023-24.


1. Export sentiment

As per RBI’s Industrial Outlook Survey, the index for exports (capturing current assessment and expectations) has been on a declining trend after peaking out in Q2-Q3 of 2021-22. This trend in survey-based sentiment indicators for exports appears to be confirming the slowdown in external demand.

Export sentiment on a declining trend

From near term perspective, the sharp slide in Baltic Dry Index1 (-37.6% in Jan-23 so far) is concerning and points towards tepid global trade. However, the impact currently is likely to be exaggerated on account of Chinese New Year holiday and the upcoming monsoon season in Brazil. In fact, with easing of COVID restrictions and re-opening of Chinese economy, global trade could see a spurt in near term momentum (post the commencement of the extended holiday season). 

Sharp slide in Baltic Dry Index in Jan-23 

2. Export financing 

Amidst slowdown in India’s exports, export financing has also seen a sharp decline – on annualized basis, export credit has been in contraction since Mar-22. The overall value of outstanding export credit from banks has fallen to Rs 15,506 cr in Nov-22 from Rs 23,621 cr in Mar-22. As per media reports, with demand uncertainty persisting, exporters are either delaying shipment orders or are not extending the terms of the contract. 

Export credit has contracted for nine consecutive months 

3. Expectations from the 2023-24 Union Budget 

Amidst headwinds from slowing demand and rising cost burden, the government could be considering raising interest equalization or subsidy benefits (by up to 2%) extended to MSME exporters. This is likely to benefit exporters from labour-intensive sectors like ready-made garments, toys, handicrafts, auto components, and processed food. In addition, the government could also be considering laying incentives for setting up of domestic Testing & Certification centres for MSME exporters and expansion of TReDS (Trade Receivables Discounting System) services to cover larger number of MSMEs and PSUs/ Corporates. 

INR: Under BoP2 pressure  

India’s net balance of payment (BoP) registered a deficit of 3.7% of GDP in Jul-Sep quarter of 2022-23 – this was the widest deficit since the 2008 Global Financial Crisis. Wide trade/ current account deficit and insufficient capital flows to fund them were the key underlying reasons for the same. 

A BoP deficit reflects greater demand for dollars, and hence pressure on rupee. As such, INR weakened by 3.0% during Jul-Sep quarter of 2022-23 (moving from 78.97 in Jun-22 to 81.34 in Sep-22) despite heavy intervention by the RBI. With INR weakening by a further 1.7% in Oct-Dec quarter of 2022-23, we expect BoP deficit to have persisted, albeit at a moderate level.  

While this would reduce the pressure on INR, bias for mild weakness is nevertheless likely to persist. As such, we expect USDINR to trade close to 83.5 levels by Mar-23, and towards 85.5 levels by Mar-24. 

BoP deficits have always caused depreciation in INR 

Year Size of BoP Deficit  (% of GDP) Change in USDINR  (%) 
1995-96 -0.3 8.0 
2008-09 -1.8 26.3 
2011-12 -0.8 14.3 
2018-19 -0.1 6.3 
2022-23* -1.1 7.9 

* BoP deficit for 2022-23 is our forecast. Change in USDINR in 2022-23 is as of Jan 17th

What should the Exporters Do ? 

  • Be watchful of Buyer credit worthiness given the heightened uncertainty and volatility expected during the next 12 months across interest rates, commodity prices and weakening demand in Buyer Countries. 
  • Diversification of Buyer Geographies is the dominant theme: Middle East esp. Saudi Arabia, UAE etc. seem to be performing quite well. South East Asia overall seems to be impacted far lesser as compared to western economies. 
  • Avail Factoring or Credit Insurance (private or Govt. ECGC) without fail on all exports. 


1. The Baltic Dry Index is a comprehensive measure of cargo rates for capesize, panamax and supramax shipping vessels carrying dry bulk commodities. 

2. Balance of Payments (BoP) is the net dollar flow position into the country on account of current account (trade, repatriation, interest & dividend income) and capital account transactions (foreign investments, external commercial borrowings, banking capital, etc.).

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