June merchandise trade gap at record $25.6 bn, experts say CAD could double





India’s merchandise trade deficit surged to a record high at $25.6 billion in June amid slowing demand for Indian exports and rising imports of gold, and crude oil, according to preliminary data released by the commerce ministry on Monday.


Among major import items, India’s traditional high dependence on crude oil led to 94.2 per cent increase in imports to $20.7 billion in June. Continuing fetish of Indians for the yellow metal amid downward spiral of the equity market meant gold imports rose 169 per cent to $2.6 billion during the month. Amid slow increase in domestic production, the government’s directive to power generation companies to blend domestically produced with 10 per cent imported coal led to a staggering 248 per cent spike in coal imports in June to $6.4 billion.


Aditi Nayar, chief economist, Icra Ltd, said widening merchandise trade deficit is worrying with a sequential dip in exports and a rise in the non-gold imports relative to May. “With a steady uptick in the size of the merchandise trade deficit over the course of the quarter, we expect the (CAD) to more than double to $30 billion in Q1FY23, from the modest $13 billion in the previous quarter. However, robust services surpluses will partly absorb the shock. We expect the to print in the range of $100-105 billion in FY23,” she added.


Outflow of foreign portfolio investments and rising trade deficit has put downward pressure on rupee which has breached the 79 mark against dollar.


In June, exports of engineering goods and pharmaceuticals items contracted 1.6 per cent and 1.3 per cent respectively while petroleum exports remained robust at 98 per cent. Among other items, exports of gems and jewellery (19.4 per cent), readymade garments (44.7 per cent) and rice (39.3 per cent) registered robust growth.


Engineering Export Promotion Council of India chairman Mahesh Desai said the negative spill over of the Russia-Ukraine war has adversely impacted engineering exports. “Going forward, the intensity of any further impact would depend on how long the global uncertainties persist. The high volatility in commodity prices, higher logistics cost and geo-political tensions remain key concerns,” he added.


The finance ministry on Friday imposed cess of Rs 6 a litre, Rs 13 per litre and Rs 6 on petrol, diesel and aviation turbine fuel exports, respectively, to improve domestic fuel supply, reduce trade deficit and garner additional revenue. The Union finance ministry also increased import duty on gold to 15 per cent from 10.75 per cent to curb rising imports of the yellow metal.


Samiran Chakraborty, managing director and chief economist for India at Citigroup said the higher import duty on gold could reduce CAD by $4-5bn while the higher taxes on petroleum product exports could increase CAD by $2-3bn. “The net effect of these measures on CAD should be small but uncertain given the complexity in assuming volume responses to tax changes,” he added.


Among major import items, India’s traditional high dependence on crude oil led to 94.2 per cent increase in imports to $20.7 billion in June. Continuing fetish of Indians for the yellow metal amid downward spiral of the equity market meant gold imports rose 169 per cent to $2.6 billion during the month. Amid slow increase in domestic coal production, the government’s directive to power generation companies to blend domestically produced coal with 10 per cent imported coal led to a whopping 248 per cent increase in coal imports in June to $6.4 billion.

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