Trade deficit eases a tad in August from July peak | The Financial Express

Trade deficit eases a tad in August from July peak

Still high for comfort; exports drop marginally.

Trade deficit eases a tad in August from July peak
As per preliminary data released by the commerce ministry on Saturday, exports hit $33 billion in August, down 1.1% from a year before, as recession in key western markets hurt order flows. (File Image: IE)

Merchandise exports dropped marginally in August from a year before, but trade deficit still eased a tad from its July peak, as imports rose at a slower pace. Nevertheless, at $28.7 billion, trade deficit still remained the second-highest on record and close to the monthly peak of $30 billion in July. This will continue to pressure the current account deficit (CAD), which is expected to have hit a nine-year high in the June quarter amid capital outflows.

As per preliminary data released by the commerce ministry on Saturday, exports hit $33 billion in August, down 1.1% from a year before, as recession in key western markets hurt order flows. Imports jumped 36.8% in August to $61.7 billion, against 43.6% in the previous month, suggesting the pent-up domestic demand, responsible for a spurt in purchases in the aftermath of the Omicron onslaught, is probably losing steam.

Moreover, easing global commodity prices weighed on both exports and imports.

Briefing reporters, commerce secretary BVR Subrahmanyam exuded confidence that exports would pick up going ahead. The optimism stems from the fact that India’s recent trade deals with the UAE and Australia will start bearing fruit soon, and that there could be a partial diversification of western orders away from Covid-hit China.

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The secretary said exports of both goods and services will exceed $750 billion in FY23 from a record $676 billion in FY22. “We expect a trade deficit at $160-180 billion at the end of year and the CAD of about 3% (of GDP) this year. We are watching the CAD carefully.”

However, reining in trade deficit at $180 billion will be a tall order, as the deficit in the first five months of this fiscal has already hit $125 billion.

Fresh challenges in the global supply chains, the restrictions on wheat and wheat export supplies, higher duties on despatches of certain steel products and iron ore will continue to weigh on export growth.

Goods imports, meanwhile, continued to be driven by a massive 86% year-on-year jump in purchases of crude oil and petroleum products and 133% spurt in coal. A spurt in prices of crude oil and coal just served to inflate the import bill of a net commodity importer like India. Electronics imports, too, rose 23% to $7.3 billion in August, and purchases of machinery and organic and inorganic chemicals jumped 33% and 43%, respectively, to $3.9 billion and $3 billion.

Petroleum product exports rose just 5.4% in August to $4.9 billion, reflecting the impact of a windfall tax. Engineering goods despatches dropped close to 15% to $8.3 billion and gems and jewellery exports declined 4% to $3.3 billion. However, electronics exports defied this slowdown trend and jumped 51% to $1.7 billion.

Growth in core imports (excluding petroleum and gems and jewellery) remained high at 40.4% to $37.5 billion. Core export growth, however, dropped almost 2% to $24.8 billion.

A Sakthivel, president of the apex exporters’ body FIEO, said the slowdown in major economies, including China, “will further affect the overall forecast for the global growth process”. The exports in August were also affected by falling prices of most of the metal and commodities.

Also Read | Exports remain flat at USD 33 billion in August; trade deficit widens to 28.68 billion

ICRA chief economist Aditi Nayar said, “The non-oil deficit accounted for nearly 60% of the total trade deficit in August, even though gold imports halved on a year-on-year basis.” “The year-on-year dip in exports, led by sectors such as engineering goods, gems and jewellery and yarns and textiles, suggests a cautious outlook for external demand going ahead,” she said.

EEPC India chairman Mahesh Desai said: “At this point, fair amount of uncertainty remains due to looming recession in major economies in the wake of ongoing Russia-Ukraine conflict. Depending on the extent of recession, Indian engineering exporters would be impacted but it is likely to hit harder the MSMEs, which have grappled with back-to-back challenges such as Covid crisis and the subsequent spike in raw material prices.”

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