Trade deficit spiked to almost $23 billion in September from $13.8 billion in the previous month, as imports surged at a much faster pace than exports, driven by elevated global crude oil prices and massive purchases of gold in the build-up to the festival season.
With crude oil prices hovering around 3-year highs, petroleum imports may continue to surge in the coming months. This will pressure trade and current account deficits, which have remained well under control in the aftermath of the pandemic.
Merchandise exports rose 21.4% in September from a year before to $33.4 billion, thanks to sustained order flow from critical western markets. Interestingly, exports recorded an even higher jump of 28.5% over the pre-pandemic (same month in FY20) level, according to the provisional estimates released by the commerce ministry on Friday.
However, at $56.4 billion, imports staged a smart rebound and grew 84.8% from a year earlier and 49.6% from September 2019, driven partly by a spill-over of pent-up domestic demand that remained mostly muted in the wake of the pandemic. But what inflated the import bill the most were oil and bullion.
Imports of petroleum products jumped almost 200% year-on-year to $17.4 billion, supported by elevated crude oil prices. Gold purchases from overseas climbed 751% to $5.1 billion in the build-up to the festival season. Of course, base effect, too, remained unfavourable. Even edible oil imports shot up by 132% and coal purchases surged 83%.
Merchandise exports have now exceeded the pre-pandemic level for seven months in a row. Exports between April and September hit $197.1 billion, up 56.9% from a year before and 23.8% from the same period in FY20.
Importantly, core exports (excluding petroleum and gems and jewellery) rose 18.6% in September from a year before, lower than the 21.4% growth in overall merchandise exports. Also, it was 33.1% higher than the level witnessed in August 2019.
Similarly, core imports (excluding petroleum and gold) rose 39.6% year-on-year and 22.9% from the pre-pandemic level.
Total goods imports in the April-September period stood at $275.9 billion, up 82.4% from a year ago and 11.2% from the pre-Covid level.
Among the key performers on the export front, outbound shipment of cotton yarn, fabrics, made-ups and handloom products rose by 40%, while that of petroleum products shot up by 39%, engineering goods by 37% and organic and inorganic chemicals by 30%.
Commenting on the export data, A Sakthivel, president of exporters’ body FIEO, said recovery in advanced economies and sustained order flows ahead of the festive season have led to the continuous growth in exports.
Aditi Nayar, chief economist at ICRA, said: “While domestic demand is recovering, the surge in imports in September likely also reflects pent-up demand and/or inventory restocking prior to the festive season, and the pace may moderate in the coming months.” Nayar expected the current account to display a double-digit deficit in the September quarter. Nevertheless, current account deficit is unlikely to cross 0.8% of GDP, she added.