Trade deficit nearly triples to $30 billion in July

India’s trade deficit may narrow a tad in August, easing concerns on the current account deficit, albeit to a limited extent

Trade deficit nearly triples to $30 billion in July
In the first four months of this fiscal, exports grew 20.1% to $157.4 billion, while imports jumped 48.1% to $256.4 billion, leading to a deficit of $99 billion

Trade deficit almost tripled to a record $30 billion in July from a year before, as a surge in imports, driven by elevated global commodity prices, continued unabated, while export growth lost pace, albeit on an unfavourable base.

According to the data released by the commerce ministry on Friday, merchandise exports rose just 2.1% on-year in July to $36.3 billion, while imports jumped 43.6% to $66.3 billion. Sequentially, exports in July fell 9.5% from June.

However, India’s trade deficit may narrow a tad in August, easing concerns on the current account deficit (CAD), albeit to a limited extent. This is because the windfall tax on exports of certain petroleum products has been cut and the government directive on mandatory coal imports by power generators (gencos) has been relaxed, official sources and analysts recently told FE.

Also Read: Concerns about inflation, current account deficit easing: Source

Nevertheless, CAD will likely more than double to 3-3.3% in FY23 from 1.2% in FY22, according to analysts. Of course, financing the CAD isn’t going to be much of a worry for the government. Moreover, if the easing global prices of commodities, especially of oil, continues amid a global demand slowown, the trade deficit, the biggest component of the CAD, may drop more than expected.

In the first four months of this fiscal, exports grew 20.1% to $157.4 billion, while imports jumped 48.1% to $256.4 billion, leading to a deficit of $99 billion. Elevated prices of crude oil, coal and fertiliser in the wake of the Ukraine war has inflated India’s import bill.

Also Read: MSME exporters facing demand squeeze in global markets

Amid a demand slowdown in key markets (the US and the EU), Indian exporters and policy makers are pinning hopes on a diversion of orders from Covid-hit China to maintain growth after stellar performance in FY22.

Briefing reporters earlier this month, commerce secretary BVR Subrahmanyam had said the export curbs on a range of products in recent months — including elevated export duties on select steel products and iron ore, a windfall tax on petroleum products and restrictions on wheat exports — dragged down growth in outbound despatches of goods. “These were necessary steps to rein in domestic inflation, but these also contributed to the static exports in July,” he had said. Without these steps, exports would have recorded decent growth in July, he had added.

The supply chain disruptions in the wake of the Ukraine war and the interest rate tightening by key central banks played their part, too.

Importantly, exports of petroleum products rose just 9% on-year in July to $6.4 billion; such exports had grown by 119% in June. Sequentially, these exports crashed by about a fourth in July from the June level, reflecting the impact of the windfall tax that was introduced from July 1, the data showed.

Similarly, exports of iron ore crashed by 94% on-year in July. The government had on May 22 raised the export duty on iron ore to 50% from 30%.

The commerce secretary had conceded that any potential demand slowdown in the US and the EU due to recession was a matter of concern. However, possible diversion of orders from Covid-hit China, the benefits of trade agreements with the UAE and Australia signed earlier this year and stepped-up efforts to diversify markets will more than make up for any potential shortfall in any market, he had said. A Sakthivel, president of the apex exporters’ body FIEO, said imports growth of about 44% in July is a matter of concern. “However, demand for low price products are on the rise and buyers are moving from China. These two factors are very positive for India,” he added.

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