Exporters bear the brunt as Russia-Ukraine crisis takes its toll

War could affect export demand as Europe is the largest national export market for India

Amid growing uncertainty due to the ongoing conflict between Russia and Ukraine, exporters have already started witnessing a decline in the number of export orders from Europe.

The apparel and engineering sectors have already witnessed the trend in the past one week. If this continues, it can have an impact on the overall export demand in the coming months, considering that Europe is the largest national export market for India.

Apparel Export Promotion Council (AEPC) Chairman Narendra Goenka said that while apparels has limited exposure to Ukraine and Russia, orders from Europe is also getting affected.

“The corporates in Europe are not committing as they would have if the war was not there. So there has been a slowdown in orders since last week. We have to keep an eye on the delay in orders,” Goenka told Business Standard.

“Currently, payments are stuck for businesses in Russia. We will have to see how it (the situation) unfolds, and settles. If the war prolongs, and it spreads to European countries, then there will be a problem and orders will get impacted,” he added.

A textile exporter said that European buyers are either suspending or postponing fresh orders for summer. “Unlike China, which produces textiles for both summers and winters, Indian exporters mainly send products during summer. So we will be more impacted if orders get cancelled,” he said.

Another industry official dealing with exports of engineering goods said that there has been a slowdown in orders, especially from Eastern Europe.

While impact may not be visible, for any exporter, the last two months of the fiscal year is crucial as it is considered the peak season for exports. “Any uncertainty during this period may not augur well for exports,” the official said, citing anonymity.

Impact on Europe can adversely affect external demand that has been robust, recovering from the impact of the pandemic. Europe–European Union and 11 other countries including the United Kingdom, Turkey, Switzerland–is the biggest export market for India, with a share of a fifth of total exports from India.

India exported goods worth $60.33 billion to Europe during the first three quarters of the current fiscal. Of this, over 40 per cent of the value of products can be attributed to engineering goods. In the case of textiles, the share of exports to Europe is 12 per cent.

Conflict between Russia and Ukraine is affecting the world, shaking financial markets and rattling global supply chains. While there could be some spill over of the war on the Indian economy, as far as trade is concerned, India has limited exposure to both countries.

Russia’s share of exports compared to India’s total exports is less than one per cent, while that of Ukraine is 0.32 per cent. Experts said that the ongoing conflict is going to have an impact on the global economy and therefore trade will also be affected in the short term.

“Fortunately, exports have done well in the first ten months because of which, we have a cushion. We are already above the $300-billion mark (exports) during the first 10 months (April-January). It is not as if Europe has been dragged into this war. So Europe may not suffer big time. Once the conflict recedes, all the headwinds that we are talking about, be it inflationary and otherwise, will disappear. It will not hurt us in the medium,” Biswajit Dhar, professor at Jawaharlal Nehru University said.