What is reason behind the numbers, impact, is it sustainable

India's goods exports experienced a nearly 20% surge in November, primarily attributed to a low base effect, as exports in November of the previous year were impacted by the onset of the Red Sea crisis in October 2024. Attacks by Houthi rebels disrupted shipping through the crucial region, leading to container shortages and increased costs due to detours via the Cape of Good Hope.

While major shipping firms are still largely avoiding the Red Sea route, hopes for reduced Houthi attacks have risen due to ceasefire agreements in Gaza. Although the Suez Canal Authority announced a partial resumption of Maersk container ship transits in early December, with a full return planned later, a Maersk spokesperson told Reuters that no specific date had been set.

Ahead of the January 1 implementation of the Carbon Border Adjustment Mechanism (CBAM), exports to European countries have increased. The CBAM will impose higher duties on Indian engineering products starting next year. This has spurred stocking, with Indian engineering goods exports growing by 30%. Exports to Germany, Spain, and Belgium have specifically jumped by 25%, 180%, and 30%, respectively.

Indian exporters are absorbing costs to maintain access to the US market, hoping for a trade agreement soon. The expectation is that the US will revoke 25% tariffs in the first phase of a deal, as India has increased crude imports from the US, signed an energy agreement to source 10% of its LPG imports from the US, and plans to open its nuclear sector, fulfilling key US demands.

That said, the reality is a bit more complicated. exporters report a slowdown in new orders, with most existing orders expected to conclude by December. This could negatively impact India's competitiveness, as competitors like Vietnam and Bangladesh are gaining orders that are shifting away from India. For example, exporters in Tiruppur have reported losing approximately Rs 7,000 crore in winter orders from the US, which will have a lasting effect on the manufacturing hub.

Exports of tariff-exempted goods like electronics and pharmaceuticals have grown by 38% and 20% respectively, likely contributing to the overall export growth to the US in November and expected to continue. The US has also expanded the list of exempted items to include tea, coffee, spices, and other food products, which have also seen significant export growth.

Engineering goods exports have also shown signs of stabilization in November, growing by over 30%. This is the largest category of Indian exports, with a notable surge in exports to European countries in recent months.

The sharp rise in exports during November also coincides with a rapid depreciation of the rupee against the US dollar, breaching the 90-dollar mark earlier in December. A weaker rupee typically benefits exporters by making Indian goods and services more affordable for international buyers.

The rupee, which reached a new all-time low of 90.79 per dollar on Monday, was 5.6% lower against the US dollar in November compared to the same month last year. This occurred despite the US dollar weakening by almost 8% over the past 12 months.