Goods trade deficit ballooned to $46 billion in the June quarter from almost $36 billion in the previous three months, threatening to reverse the benign current account deficit (CAD) level of 0.7% of GDP witnessed in the March quarter.
Merchandise exports shrank 9.7% year-on-year in June to $25 billion, the first contraction in nine months and the worst since January 2016, mainly as petroleum exports plunged almost 33% following a temporary shutdown of a crude distillation unit in Reliance’s Jamnagar refinery for maintenance and MRPL’s Mangalore facility operating at lower capacity due to a water shortage.
Since imports, too, shrank in June (by 9.1% y-o-y to $40.29 billion), goods trade deficit didn’t worsen sequentially but still remained as high as $15.28 billion, slightly lower than $15.36 billion, a six-month peak, in May. Goods trade deficit ballooned to $46 billion in the June quarter from almost $36 billion in the previous three months, threatening to reverse the benign current account deficit (CAD) level of 0.7% of GDP witnessed in the March quarter.
Commerce secretary Anup Wadhawan blamed the shutdown of refineries and tough global conditions for the latest contraction and expected exports to rebound soon. The impact of refinery shutdown on exports is likely to weigh on July exports as well, as Reliance had said the unit at Jamnagar could remain shut for up to four weeks from June 20.
The export contraction comes on the back of a relatively unfavourable base (exports had grown 17.6% in June 2018). However, it also underlines the strong external headwinds the country faces due to a worsening global trade war, growing tussle between Washington and New Delhi over the latter’s “high tariff” and the recent US withdrawal of the zero-duty trade benefits for annual Indian exports of around $5.6 billion under the so-called generalised system of preference.
Having grown at 9% in FY19, India’s merchandise export growth has collapsed to just 0.6% in April, 3.9% in May and -9.71% in June. Citing persistent risks from a global trade war, the IMF has already trimmed its 2019 trade growth forecast by a sharp 60 basis points to 3.4%, against the actual rise of 3.8% in 2018. This will weigh on the prospects of Indian exports.