India’s merchandise exports contracted for the eleventh consecutive month in October, latest data released by the commerce ministry showed, falling 17.53%.

In large part, the decline is due to the fall in oil prices. As petroleum and crude products account for 18-20% of the export basket, a fall in oil prices, over which India has little control, is bound to impact exports.

But what is particularly worrying is the persistent weakness across other major segments. Gems and jewellery, which account for roughly 13% of the export basket, fell by 12.8%. Chemicals and related products which account for 10% of the basket fell by 8.2% while engineering goods with a share of 22.4% have contracted 11.6%. Among the major export items, only drugs and pharma and readymade garments registered positive numbers.

This continuing weakness reinforces concerns about India’s ability to replace China as the manufacturing hub of the world. It also raises serious doubts about meeting the $300 billion export mark for FY-16; for the first eight months of the current financial year, exports have fallen 17.6% to $154.29 billion.

While fluctuations in currency could explain part of the decline, in large measure the decline is a consequence of sluggish global demand. Even if one discounts exports of petroleum exports to Singapore, China and Saudi Arabia, overall exports to these countries have also declined, as have exports to US and UK, albeit by a lower magnitude. The latest data suggests that weak global demand is taking its toll on our exports.

Directly though, a slowdown in China is unlikely to have repercussions on India’s exports as that country accounts for a small share of our export basket. But the indirect consequence is likely to be more severe. Sluggish Chinese growth impacts not only commodity exporters but also Asian economies who are closely integrated into the Chinese supply chains. And as Asia accounts for roughly half of India’s exports, a slowdown in these economies is likely to impact India gravely.

The outlook for exports is likely to become bleaker as more countries carve out special trade agreements between themselves. The most recent example is that of the Trans-Pacific Partnership (TPP). According to experts, TPP countries account for roughly 25% of India's exports. And as these countries are going to get special preferences to trade between themselves, our exports to these countries are likely to be impacted.