India’s merchandise exports contracted for the first time in two years, in October, as slowing external demand amid recession fears in the West started impacting shipments from the country, further exacerbated by a higher number of holidays during the festival month.

The exports declined 16.65 per cent in October to $29.78 billion, the data released by the commerce department showed on Tuesday.

Imports, on the other hand, moderated to the lowest level in eight months, growing at 5.7 per cent to $56.69 billion last month.

This resulted in a trade deficit of $26.91 billion, which remained above the $25-billion mark for a fifth straight month, according to the data.

It was in November 2020 when exports contracted last time, by 8.74 per cent.

During October, 24 out of the 30 key export items showed contraction, while only six – electronic goods, rice, tea, oil seeds, oil meals, and tobacco — witnessed growth, the data showed.

Contraction in key commodity groups such as engineering goods (-21.3 per cent), gems and jewellery (-21.6 per cent), chemicals (-16.4 per cent), and readymade garments (-21.2 per cent) dragged down the overall exports.

Non-petroleum, non-gems and jewellery exports -- considered to be core exports --declined by 20.4 per cent to $26.25 billion in October.

Commerce Secretary Sunil Barthwal pointed out that both global as well as domestic factors had had an impact on India’s exports.

He also pointed out the “heavy impact” of the festival season.

“Tightening of monetary policy in most of the developed world – Europe, the US and elsewhere – puts less money in the hands of the public.

Therefore, consumption slows down.

These are going to be tough times for us.

There will be a lot of headwinds for us, and this will impact our exports too,” Barthwal told reporters on Tuesday.

“I looked at the data of the last two years and I found that during Diwali and pre-Diwali period, there is $4 billion less exports…We also need to look at the seasonality,” he said, adding that export restrictions on items such as steel had also affected export growth.

Aditi Nayar, chief economist at ICRA, said a moderation in exports and imports on a sequential basis in October was driven by a larger number of holidays in the festival season.

On a cumulative basis, the growth in exports was 12.55 per cent during the first seven months of the financial year (April-October).

In terms of value, exports had peaked at $42 billion in the month of March.

After June, outbound shipments gradually started declining, with geopolitical tensions affecting demand.

A Sakthivel, president of the Federation of Indian Export Organisations (FIEO), said the coming months would be quite challenging unless both global economic growth and geopolitical situation improved drastically.

Rajani Sinha, chief economist at Care Ratings, said the pinch from slowing external demand was going to get more painful for the Indian economy in the months to come.

“We could see a significant portion of India’s GDP shaved by the widening of trade deficit,” she cautioned.