India’s July trade deficit widens to record $31 bn; exports dip marginally
India’s trade deficit widened to a record $31 billion in July with a sequential decline in exports and flattish imports on the back of growing recessionary trends in developed economies and elevated commodity prices.
The data released by the commerce ministry on Tuesday showed merchandise exports declined to a five-month low at $35.2 billion in July while imports eased sequentially to $66 billion in the same month.
Seven out of top 10 export items saw contraction during the month, which included engineering goods (2.5 per cent), petroleum products (7.1 per cent), gems and jewellery (5.2 per cent), pharmaceuticals (1.4 per cent), readymade garments (0.6 per cent), cotton yarn (28.3 per cent) and plastic (3.4 per cent). However, exports of chemicals (7.9 per cent), electronic goods (46.1 per cent), rice (30.2 per cent) saw robust growth.
Among major import items, gold imports declined 43.6 per cent to $2.4 billion after the Centre raised import duty on gold last month to discourage buyers in the world’s second-largest consumer. Petroleum exports contracted 7 per cent to $5.4 billion, due to windfall tax and restrictions on export of petroleum products. However, non-oil, non-gems and jewellery imports grew 42.9 per cent, due to recovery in domestic economic activity as well as elevated price pressure.
Commerce secretary B V R Subrahmanyam said with fear of recession looming in some of India’s largest export markets, US and Europe, India should be worried. “But I think we will be able to compensate for the hit from these two regions. The recently signed trade deals with the United Arab Emirates and Australia will also boost exports. Around $15-16 billion exports can be compensated from these two nations,” he said.
Subrahmanyam said exports can comfortably reach above $500 billion in the current financial year, adding that restrictions on exports of wheat, iron and steel, and petroleum products have reined in the export growth. “$1-2 billion worth of wheat has been retained domestically. Our domestic food security is important but this has reduced the export figures,” he added.
The positive side is that trade deals with UAE ,Australia and upcoming deals with the UK will boost exports. Apart from that the rupee denominated trade arrangement announced by the RBI will boost trade with Russia and Sri Lanka. “The whole idea of a rupee trade is to restore trade with Sri Lanka and capitalise opportunities in Russia (to boost exports). I see huge opportunities in Russia tea, telecom, pharmaceutical products, leather. In next two months, I see $8-9 billion trade with Russia and Sri Lank coming back to life,” the commerce secretary said.
With fear of recession looming in some of India’s largest export markets—US and Europe, India should be ‘worried’, Subrahmanyam said. “We should be worried, but I’m not able to understand the US market and Europe is stuck in a crisis (hit by Ukraine crisis). Let’s see how it happens. I think we will be able to compensate for the hit from these two regions,” he said.
India had surpassed the $400-billion target in 2021-22, closing the last financial year at $421 billion.
Engineering Export Promotion Council (EEPC) of India chairman, Mahesh Desai, said since the US and Europe are among the top destinations for Indian engineering goods, recessionary trends in advanced economies would certainly have an impact on exports. “The muted engineering exports in June was a reflection of the weakening demand from these markets. 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 added.
UNCTAD, in its latest Global Trade Update, said most of the merchandise trade growth is nominal and that the positive trend for international trade may soon come to an end. “Rising interest rates and the winding down of economic stimulus packages will likely have a negative impact on trade volumes for the rest of 2022. Volatility in commodity prices and geopolitical factors will also continue to make trade developments uncertain. The conflict in Ukraine is putting further upward pressure on the international prices of energy and primary commodities. In the short term, because of the inelastic global demand for food and energy products, rising food and energy prices would likely result in higher trade values, and marginally lower trade volumes,” it added.
Aditi Nayar, chief economist at ICRA, said the sharp trade deficit in July does not augur well for the size of the current account deficit in Q2FY23. “The current account deficit is likely to have crossed $30 billion in Q1FY23, a fallout of the higher commodity prices, equivalent to around 80% of the full year figure for FY22. Lower commodity prices should temper the trade deficit going ahead, although the strength of merchandise and services exports in the face of the global slowdown fears, remains crucial,” she added.
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