India closes FY23 with record trade numbers

This is higher compared to the February 2023 deficit but sharply lower than the peak merchandise trade deficit of $30 billion recorded in July 2022. The overall merchandise trade deficit in Q4FY23 was just $55 billion. A combination of lower commodity prices and weak demand has pushed total trade volumes lower. There are two important observations here.

For the month of March 2023, the gross merchandise trade (exports + imports) surged to $96.5 billion. It is still short of the $100 billion of gross trade scaled between March 2022 and July 2022, but that is understandable considering the tapering of commodity prices. However, the big story, as we shall see later was the services exports. If you look at FY23 overall, then the total services exports were Rs322.72 crore; a full 26.8% above the services exports level in FY22. This has been the singular factor that has ensured that the current account deficit (CAD) for FY23 stays under control. But first the trade data.

How does March 2023 trade look?

The table below captures the monthly wise data of exports, imports, and trade deficit for the last 13 months. 

Data Source: DGFT

As can be seen from the above table, merchandise trade deficit peaked around July 2022 and has tapered since. For the full year FY23, after adjusting for delayed customs data inflows, India reported merchandise trade deficit of $266.78. There has been an overall reduction of nearly $33 billion from original figures due to delayed customs data inflow.  

How was the trade and deficit picture for FY23

For the financial year FY23, the total merchandise exports are higher by just 6.03% yoy at $447.46 billion while the total merchandise imports were higher by 16.5% at $714.24 billion. Gross merchandise trade for FY23 (imports + exports) was up 12.2% at $1,161.70 billion while the total trade deficit for the year is higher by 39.6% at $266.78 billion. While the merchandise trade deficit was expected to be $300 billion for FY23 fiscal, the final figure is sharply lower. Let us look at the top-10 contributors to exports and imports for FY23.

Data Source: Ministry of Commerce

On the exports side, the top 11 products account for over 83% of the overall export basket for FY23. On the imports side, the top 11 products account for over 80% of the import basket. Among the top exported products, the yoy growth in electronic goods, petroleum products and rice were extremely strong. The export growth was negative in several items with a sharp fall in exports of iron ore, cotton yarn, carpets, and cashew.

Let us now turn to the import story for FY23. There was a big surge in the import of coal, coke, and briquettes, due to domestic shortages. Imports of fertilizers, transport equipment and petroleum also surged in FY23. Among the commodities that saw lower imports; there was a sharp fall in imports of sulphur, iron pyrites, gold, pulses, and pharmaceuticals.

Export leaders and laggards for March 2023

There were several star export performers in March 2023. Oil Meals (+156.56%), Oil Seeds (+99.50%), Electronic Goods (+57.36%), Coffee (+17.86%), Marine Products (+12.85%) and Fruits & vegetables (+11.37%) were the key export growth drivers. In March 2023, the export losers outnumbered the export gainers by a ratio of 17:13.

There were several export laggards in March 2023. Petroleum Products (-44.59%), Handicrafts (-29.01%), Carpets (-28.45%), Gems & Jewellery (-27.39%), Jute (-23.98%), Cotton Yarn (-23.89%) and Cashew (-18.01%) lagged in terms of the exports. The exports laggards were typically where India had traditional export advantages but the demand appears to have slackened further in the aftermath of the banking crisis.

Import leaders and laggards for March 2023

The big import surge in March 2023 came from Gold (+216.75%), Project Goods (+133.13%), Newsprint (+68.75%), ores & minerals (+64.73%), Optical goods (+33.18%), Pulses (+29.11%), Iron & Steel (+20.98%) and Chemicals (+19.38%). 

Major items in the basket that showed lower imports yoy in March 2023 were Sulphur & Iron Pyrites (-74.42%), Fertilizers (-50.98%), Silver (-43.64%) coal/coke (-24.93%) and vegetable oils (-18.90%). The lower imports were triggered by a lower import demand in select products in line with enhanced domestic output.

Big story on the services exports front

If you were to sum up the story of FY23, it is actually the story of the growth in services exports. That has been the saving grace for the trade account and also for the current account, as we shall see later. For example, the services exports in FY23 stood at $322.72 billion, which is 26.8% higher than FY22. More important is the contribution of the services surplus to the overall deficit. In FY23, the services trade surplus stood at $144.78, which is 34.7% higher than the services trade surplus in FY22. If the overall trade deficit for the fiscal year FY23 has been curtailed at just about $122 billion, the credit for this largely goes to the surge in services surplus; largely on account of higher software exports and the surge in business services provided by India to customers abroad.

Current account position looks more palatable in March 2023

The merchandise trade deficit for FY23, originally pegged at $300 billion, closed at $266.78 billion. That is higher than last year, but manageable compared to the apprehensions about 4-5 months back. Here is a quick view of overall deficit combining services and merchandise trade as a proxy for current account deficit.

Data Source: DGFT (# – DGFT estimates due to 1-month lag in RBI reporting)

The overall trade deficit, which is a combination of the merchandise trade deficit and services trade surplus, had fallen from $(118.12) billion in December 2022 to $(111.94) billion in January 2023 and had marginally widened to $(114.59) billion in February 2023. As of March 2023, the overall trade deficit stands at $122 billion; less of a challenge for CAD. 

Effectively, that will translate into CAD between 3% and 3.3% of GDP. That is high, but not as bad as the 4.5% CAD, that we had envisaged in September 2022. The CAD situation should be less of a problem than imagined earlier. There are two big stories that worked in India’s favour. The first was the fall in the import bill in line with the sharp fall in commodity prices worldwide amidst recession concerns. The second big factor was the surge in services exports. Clearly, Indian trade is making up where it is best equipped.