India’s January merchandise trade deficit narrowed to $17.75 billion versus $22.1 billion in December. This is the lowest print in over 12 months, led by a sharp fall in imports even though exports remain weak. Poor global demand continues to weigh on exports, clocking in at $32.91 billion as there is a further dip of 6.58% from the previous month. The IMF predicts a drop in global growth from 3.4% in 2022 to 2.9% in 2023, but India remains a bright spot with growth projected at 6.8% in 2022 and 6.1% in 2023, driven by strong domestic demand despite external challenges. This has a mixed impact on India’s trade, as declining global growth reduces export demand while high domestic growth boosts import demand.
Impact of oil on India’s foreign trade
India’s January exports declined by 6.6% YoY to $32.9 billion due to lower oil exports. In the ten months ended January, electronics and petroleum exports remained strong while engineering goods growth contracted. India’s oil deficit narrowed to $9.7 billion despite an increase in crude prices. Import of crude oil from Russia still constitutes 21% of India’s oil imports. Russia’s plan to sell most of its oil to friendly countries may help India conserve forex reserves and reduce the burden of CAD.
Commodity Growth
Exports of commodities such as electronic goods (up 55.5%), oil meals (up 49%), oil seeds (up 23.8%), iron ore (up 21%), and rice (up 18.8%) saw a large on-year growth in January 2023. Electronic goods exports nearly doubled from $9.8 billion in April-January FY20 to $18.8 billion in FY23. For imports in January, newsprints, project goods, iron and steel, optical goods, and crude petroleum grew the most.
India’s services trade
January’s services surplus rose to $16.5 billion with exports at $32.2 billion and imports steady at $15.8 billion. Exports rose due to software, consulting, and management, but may slow down in the next few months, according to analysts. Software exports make up ~47% of total receipts, and the entire surplus is due to software services export, according to RBI BoP data. The government predicted that services exports will remain strong and is projected to grow at 31.86% during April-January 2022-23 over the same period last year.