Exports push GDP growth, but low-margin shipments struggle

India's goods exports surged in June, reaching a record $44.24 billion, despite the turmoil caused by the crisis in West Asia. This strong performance contributed to a higher-than-expected GDP growth of 7.8% for the April-June quarter. However, not all sectors within the export industry fared well. While overall goods exports grew by 15% year-on-year to $129.32 billion, non-petroleum, non-gems, and jewellery exports expanded by 12% to $99.04 billion, marking a significant contrast to the weaker performance of low-margin exports.

Chief Economic Adviser V Anantha Nageswaran attributed this robust export growth to the signing of free trade agreements, efforts in export diversification, and potentially rising competitiveness. Economists attribute 3 percentage points to GDP growth in April-June 2026 to net exports, which saw a sharp increase due to a decline in real imports, driven by the West Asian conflict.

Yet, the headline figures do not tell the full story. While high-end products such as engineering goods, electronics, and pharmaceuticals expanded by 18.1%, 22.6%, and 6.8%, respectively, several labor-intensive sectors, including textiles, leather products, and low-margin exports like fruits, vegetables, ceramics, and jute products, experienced significant declines, falling by 12.4%, 4.7%, 10.3%, 25%, and 13.4%, respectively.

The West Asia crisis has disrupted trade at various levels, with steep logistics costs affecting profit margins. High-margin products, such as consumer electronics, are better equipped to absorb the impact of rising logistics costs, while low-margin exporters struggle to protect their margins by reducing prices. Devendra Kumar Pant, Chief Economist at India Ratings, highlighted that exporters are facing challenges in maintaining margins, as importers are unwilling to pay higher prices for low-margin products.

The rupee's depreciation to 94.7 per dollar has provided a competitive edge for export-oriented sectors like IT and pharmaceuticals, while hurting import-dependent sectors such as oil and gas. However, the depreciation also aids export-oriented sectors, providing a 15% advantage over Chinese exporters. Additionally, diversification and higher export absorption by countries with which India has signed FTAs, such as Singapore, Australia, and the UK, have helped mitigate the impact of the crisis.