India’s Merchandise Trade Deficit Shoots Up To $31.02 Billion In July; Exports Static At $35.24 Billion

A double whammy of high global commodity prices and consequent pressure on the Rupee's exchange rate led India’s merchandise trade deficit to shoot up to an uncomfortably new high of $31.02 billion in July 2022, as merchandise imports at $66.26 billion outpaced exports of $35.24 billion.

The merchandise import in July 2022 was 43.59 per cent higher than $46.15 billion of imports in July 2021.

India’s merchandise export in July 2022 also remained flat, at almost similar levels of $35.51 billion in July 2021, as per provisional data released by the Commerce Ministry. That too has been possible, as the Ministry says, despite sustained disruptions of supply chains due to the Covid and Russia-Ukraine conflict and tighter measures to control inflation.

India’s merchandise exports in the first four months of the fiscal (April-July) 2022-23 at $156.41 billion, while registering a year-on-year increase of 19.35 per cent over $131.06 billion in the same period of FY 2021-22, was surpassed by merchandise imports.

The top sectors, which led exports growth during the first four months of the fiscal were petroleum products, engineering goods, gems and jewellery, organic and inorganic chemicals, drugs and pharmaceuticals, electronic goods, RMG of all textiles and rice.

In April-July FY23, import was $256.43 billion with an increase of 48.12 per cent over $173.12 billion in April-July 2021-22. The trade deficit during April- July of the financial year 2022-23 was $100.01 billion.

The two consecutive quarters of negative growth have added to the fears that the US may slip into recession and this is being seen as one of the major worries of industry bodies like Engineering Export Promotion Council.

“The muted engineering exports in June was a reflection of the weakening demand from these markets,” says Chairman EEPC India Mahesh Desai. Preliminary trade data shows engineering goods exports fell 2.54 per cent year-on-year to $9.30 billion in July 2022 as compared to $9.54 billion in July 2021.

The widening of the trade deficit further to $31 billion in July 2022, with a sequential decline in exports and flattish imports, was contrary to the expectations of ICRA chief economist, Aditi Nayar.

“The $20 billion YoY increase in imports was led by petroleum products and coal, negating the relief offered by a decline in gold imports,” says Nayar, expressing worry over merchandise imports recording almost twice as high levels as merchandise exports in July 2022.

Nayar expects the current account deficit to have crossed $30 billion in Q1 FY2023, as “a fallout of the higher commodity prices, equivalent to around 80 per cent of the full year figure for FY2022”.

However, president of the Federation of Indian Export Organisation, A Sakthivel, feels that the marginal decline of 0.76 per cent in exports indicates the strong resilience of the exports sector.

Signs of a likely slowdown in exports can been seen as global inventories are pretty high and there is again a shift in consumption from goods to the services with opening up of economies after Covid-19 pandemic, argues Sakthivel.

The cumulative value of non-petroleum exports in April-July of FY23 was $123.90 billion, an increase of 10.3 per cent over $112.32 billion in the corresponding period of FY22.

Value of non-petroleum and non-gems and jewellery exports in July 2022 at $26.54 billion also registered a bare growth of 1.24 per cent over non-petroleum and non-gems and jewellery exports of $26.21 billion in July 2021.

The cumulative value of non-petroleum and non-gems and jewellery exports in April-July FY23 was $110.39 billion, an increase of 10.73 per cent over cumulative value of the same category of goods exports of $99.69 billion in April-July 2021-22.

Value of non-petroleum imports was $45.13 billion in July 2022 with a positive growth of 33.74 per cent over non-petroleum imports of $33.74 billion in July 2021. The cumulative value of non-petroleum imports in April-July FY23 was $174.39 billion, showing an increase of 34.35 per cent compared to non-oil imports of $129.81 billion in April-July 2021-22.

Value of imports of non-oil, non-gems and jewellery goods comprising a basket of gold, silver and precious metals at $38.44 billion in July 2022 grew 42.88 per cent over non-oil and non-GJ imports of $26.9 billion in July 2021. On a cumulative basis, imports of gold, silver and precious metals in April-July FY23 was $147.55 billion, recording a positive growth of 36.93 per cent, as compared to non-oil and non-GJ imports of $107.75 billion in April-July 2021-22.

Going ahead, lower commodity prices should temper the trade deficit, although the strength of merchandise and services exports in the face of the global slowdown fears, remains crucial, points out Nayar. “Nevertheless, the sharp trade deficit in July 2022 does not augur well for the size of the current account deficit in Q2 FY2023,” cautions Nayar.

Considering that the US and Europe are among the top destinations for engineering exports, recessionary trends in developed markets were bound to impact the prospects, worries Desai.

“There has already been subdued demand from China and in recent months, shipments have fallen. All in all, the situation remains delicate in the wake of prevailing geo-political and economic situations,” he adds.

According to Sakthivel, reduction in voyage time, with normalisation of Covid disruptions, have also added to the inventory hike as goods which used to reach the West Coast of the US in 150 days now reach in 60 days.

The export figures have also been affected as the prices of most of the metal and commodities are falling, which has resulted in value-wise export realisation.

He, however, admits that imports growth of about 44 per cent during the month is of concern and has been mainly on account of petroleum products; electronic goods, coal, coke and briquettes; machinery, electrical and non-electrical, organic and inorganic chemicals and pearls, precious and semi-precious stones, artificial resins, plastic materials, vegetable oil and non-ferrous metals.

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