New Delhi: India’s merchandise exports expanded for the first time in 19 months in June, snapping a downward spiral that lasted one-and-a-half years as demand shrank in overseas markets that grappled with faltering economic growth.

Overseas shipments rose 1.27% in June to $22.6 billion while imports contracted for the 19th month in a row, down 7.3% to $30.7 billion, generating a trade deficit of $8.1 billion—the highest in six months.

In June, China’s exports fell 4.8% while its imports dropped 8.4%.

During the month, India’s oil imports fell 16.4% while non-oil imports dropped 4.1%.

In the first quarter (April-June) of the fiscal year, India’s exports contracted 2.1% to $65.3 billion while its imports dropped 14.5% to $84.5 billion, leaving a trade deficit of $19.2 billion.

World trade has been shrinking as demand slowed in key American and European markets. Growth in the volume of world trade is expected to remain sluggish in 2016 at 2.8%, the same as in 2015, the World Trade Organization said in an April report.

The government’s earlier target of $900 billion from exports of goods and services by 2020 and raising the country’s share in world exports to 3.5% from 2% now looks more daunting.

The Economic Survey released before the budget in February said that even though India’s long-term potential gross domestic product (GDP) growth is 8-10%, its actual growth in the short run will also depend upon global growth and demand.

“After all, India’s exports of manufactured goods and services now constitute about 18% of GDP, up from about 11% a decade ago," it pointed out.

The survey said one scenario India must plan for is a major currency re-adjustment in Asia in the wake of a similar adjustment in China, as such an event would spread deflation around the world.

“Another tail risk scenario could unfold as a consequence of policy actions—say, capital controls taken to respond to curb outflows from large emerging market countries, which would further moderate the growth impulses emanating from them," it added.

In June, exports of 17 of India’s top 30 export items grew. Among the major items, export of pharmaceuticals (0.07%), chemicals (14.4%) and engineering goods (0.9%) increased, while gems and jewellery (-0.49%), readymade garments (-0.78%) and petroleum products (-10.8%) declined.

Gems and jewellery (24.34%) had shown significant growth in May. However, higher exports of petroleum products—$2.6 billion in June against $2 billion in May—and crops such as tea, coffee, rice and oilseeds helped boost overall exports.

Shipments of 13 of the 30 top import items grew in June. Among the major items, imports of plastic (1.6%), machinery (1.8%), transport equipment (11%) and electronic goods (9.4%) grew, while coal (-13%), petroleum (-16.4%), chemicals (-4%), pearls (-13.5%), iron and steel (-16.7%) and gold (-38.5%) declined.

Growth in machinery and transport equipment imports indicate a pickup in domestic demand.

Aditi Nayar, senior economist at Icra Ltd, said the increase in both headline and non-oil merchandise exports in June is encouraging, notwithstanding the favourable base effect owing to the contraction recorded in June 2015.

“The collapse in gold imports, continuing benefit from a lower oil import bill, coupled with the nascent turnaround in exports, suggest a high likelihood of a mild current account surplus in the first quarter of 2016-17, even if remittances moderate further," she added.

India’s current account came closer to recording a surplus with the March quarter current account deficit narrowing sharply to 0.1% of GDP on account of a lower trade deficit.

S.C. Ralhan, president of the Federation of Indian Export Organizations, said exports by engineering, marine, pharmaceutical, plantation commodities, electronic goods, carpets and handicrafts sectors were encouraging as these are high employment-generating sectors as well.

“Decline in gems and jewellery and apparel exports, though marginal, is a cause of concern. However firming of gold prices and the new package given to the textile and apparel sector will lead to better results in a short span of time," he said.

However, Ralhan said that Brexit and consequent depreciation of the British pound has put Indian exporters in a difficult situation, particularly smaller exporters who have not hedged their currencies.

“Moreover, Brexit is expected to put pressure on the euro as well. Indian exports may face a challenge on account of volatility in currency and increasing competition from low-cost

East European economies," he added.

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