Falling total trade is a worry for Indian economy
The total trade is down 7.8% between Mar-21 and Apr-21. This can be attributed to COVID-2.0 related lockdown. S&P Platts has pegged India’s oil demand to fall by 24% in this year. With India relying on oil imports to meet ~80% of its daily oil requirement, this means a lower import bill. That was evident in the April numbers. On the exports front, there was pressure from MSMEs and hinterland businesses. MSMEs account for 40% of exports and the strain on these small units is a key reason for weak exports.
Exports have grown 3-fold on a yoy basis
If you compare Apr-21 data with Apr-20, the growth numbers could look a tad overstated due to the weak base effect. Exports were extremely tepid in Apr-20 due to the full impact of the pandemic. Here are the export jump numbers.
Exports at $30.63 billion in Apr-21 were up 195.72% yoy. This could be an optically attractive scenario as Apr-20 was an extremely weak month with pandemic at its peak. Many of the below growth numbers look overstated due to the base effect. There were several star export performers in Apr-21. Exports of Gems & Jewellery (+9,271.21%), Jute manufacturing (+1,684.62%), handicrafts (+1,275.46%), leather products (+1,201.44%), Textile products (+927.08%), Cotton yarn and fabrics (+618.26%), Cereals (+451.39%), Ceramic Products (+444.35%), Electronic Goods (+372.62%), Oil Meals (+279.49%), Cashew (+260.48%), Engineering Goods (+238.27%), Petroleum Products (+191.53%), Tobacco (+187.40%) and Iron Ore (+172.16%) were the stars, notwithstanding the base effect.
Obviously, in a month when the base was so low, there were no export laggards. Non petroleum and non-jewellery exports in Apr-21 stood at $23.62 billion compared to $9.08 billion in Apr-20.
Imports also tapered in the month of Apr-21
Merchandise imports for Apr-21 stood at $45.73 billion, 167.05% higher yoy. Imports were lower by 5.5% on a sequential basis. Crude oil imports at $10.87 billion in Apr-21 were higher by 133.24% yoy. Brent prices rallied nearly 85% since Nov-20 .
There were a number of commodities that showed lower imports on a yoy basis for Apr-21. The fall was (-88.53%) for Silver, (-46.04%) for newsprint and (-41.98%) for pulses. The import bill was tepid compared to Mar-21 as key imports like oil, gold and even base metals are slowing.
Overall trade balance starts FY22 in the negative
For the first month of FY22, the combined surplus of merchandise and services trade stood at $(-6.93) billion. The surplus on services struggled to keep pace with merchandise deficit and hence overall gap has widened.
|Particulars||Exports ($ bn)||Imports ($ bn)||Surplus / Deficit ($ bn)|
|Merchandise trade||$30.63 bn||$45.73 bn||$(-15.10) bn|
|Services Trade #||$21.17 bn||$13.00 bn||$+8.17 bn|
|Overall Trade||$51.80 bn||$58.73 bn||$(-6.93) bn|
In the previous year, the overall balance of merchandise and services trade remained positive before dipping into negative in the last few months. In fact, India ended FY21 with a net overall deficit of just about -$12.75 billion. However, in FY22, there is already an overall deficit of -$6.93 billion in the first month itself. That will be a trade challenge for India.
Three things to watch out for on the trade front
COVID 2.0 and the delays in vaccination pose a fresh risk to trade growth. There are 3 key challenges as we see it.
- The imports of oil are likely to be hit by the lower oil demand but once a recovery starts, the oil demand is the first to pick up. Unless, India is prepared, we could soon have a situation where imports are spurting and exports struggling to catch up.
- A lot will depend on the spread and depth of the vaccination drive. COVID 2.0 has a major negative impact in rural hinterlands and that is negative for the scores of MSMEs that form the backbone of the export ecosystem in India.
- Lastly, FY22 has started with an overall deficit of $6.93 billion in Apr-21 compared to a deficit of just $12.75 billion in the whole of FY21. That is likely to put pressure on the current account balance and stability of the INR in the coming months!