Reflect nascent revival of domestic demand
Merchandise exports inched up in December, for a second time since February 2020, while imports advanced for the first time in 10 months, suggesting a gradual return towards normalcy.
The quick estimate released by the commerce ministry on Friday shows exports rose 0.1% on year to $27.15 billion in December, better than a 0.8% contraction announced earlier. Imports rose at a much faster pace of 7.6% in December to $42.59 billion, inflating trade deficit to a 25-month high of 15.44 billion.
The rise in imports reflects a nascent revival of domestic demand following the Covd-induced compression since March last year, as businesses go through a “reset” phase, taking advantage of the lifting of lockdown curbs.
However, as pointed out by analysts, some amount of pent-up demand for raw materials may also have contributed to the increase in imports, although it’s still an encouraging sign. If inbound shipments continue to rise, import-sensitive exports, too, will get a boost but it will also mark a return to the usual high trade deficit trend.
The outbound shipment of core products (goods excluding petroleum and gems & jewellery), which reflects the economy’s competitiveness, grew 5.5% in December, against a 0.4% fall in the previous month. Similarly, core imports rose 8% last month, compared with a 1.7% fall in November.
Already, hit by the pandemic, exports have witnessed a roller-coaster ride this fiscal. Having risen by 6% in September, the first expansion since February, outbound shipments faltered by 5.1% in October and 8.7% in November before the marginal rise in December.
Overall, merchandise exports still still down by 15.7% up to December this fiscal, while imports contracted by 29%.
Interestingly, core exports have accelerated at a quicker rate than that of overall merchandise exports month after month since May 2019, according to an FE analysis, based on the data from the Directorate General of Commercial Intelligence and Statistics.
Aditi Nayar, principal economist with Icra, recently said: “The recovery in imports reinforces our expectation that the current account surplus will deflate to sub-$5 billion in the second half of this fiscal.”
The expansion in non-oil exports is enthusing in light of the curbs imposed by major trading partners following the resurgence of Covid-19 cases, Nayar said. Higher imports “signals a strengthening of the domestic growth impulses, pent-up demand for imported items as well as a rise in commodity prices”, she added.
Sharad Kumar Saraf, president of the exporters’ body FIEO, stressed that traditional and labour-intensive sectors have passed the most challenging times and the order books have started looking up with more contractions being firmed up. “The arrival of vaccines have also helped in boosting the business sentiments,” he added.
Some of the high-value products that witnessed substantial rise in exports in December included iron ore (69.3%), drugs and pharmaceuticals (17.4%), electronics (16.5%) and gems and jewellery (6.8%).
Already, presenting a less gloomy picture, the World Trade Organization in October expected global merchandise trade to fall by 9.2% in 2020 from the year before, compared with the 12.9% drop projected in April last year. This will augur well for India’s trade as well.