There have been several reasons for this sharp fall in trade volumes. Firstly, the lockdown hit trade infrastructure including highway movement, banking, port activity etc. Secondly, the global demand for most industrial products was sharply lower as factories and establishments were shut across the world. Thirdly, crude oil prices have fallen from a high of $70/bbl to $28/bbl and the impact was pronounced on India as it relies on imported crude for ~85% of daily needs. Finally, the export oriented units in India were shut down due to COVID-19 and so most exports for the month of April happened out of inventories only.
Exports shrunk sharply in April 2020
Merchandise exports for Apr-20 stood at $10.36 billion, a sharp fall of (-60.28%) on a YOY basis. Indian exports were constrained from the demand and the supply side. It was a mix of global demand factors and the lockdown of Indian manufacturing capacity. Supply chains also got badly disrupted and that spoilt the delicate trade cycle. In terms of specific sectors, iron ore and pharma managed positive growth. Iron ore grew at 17.53% and pharma exports grew at 0.25%; largely on the back of COVID-19 demand. Other product groups showed negative growth. The negative growth was steep in Gems & Jewellery (-98.74%), leather products (-93.28%), handicrafts & carpets (-91.84%), jute exports (-90.61%), man-made yarn (-84.11%), ceramic products (-76.22%); and the list could go on!
Imports also fell sharply in April 2020
Merchandise imports for Apr-20 stood at $17.12 billion, a fall of (-58.65%) on a YOY basis. Crude oil imports at $4.66 billion were lower by (-59.03%) on a YOY basis largely led by a 67% fall in Brent Crude prices over last year. There were deep cuts in other imports too. There was a (-62.7%) fall in electronic goods, (-53.91%) for electrical machinery and (-35.10%) for organic and inorganic chemicals. The good news was that gold imports were also sharply down; putting less pressure on the forex chest.
An overall surplus in April-20; but too early to celebrate
The table captures the key export and import data points for merchandise trade and services trade for April 2020. Please note that April figures for services trade are estimates since RBI releases the service trade figures with a lag of one month.
|Period||Exports||Imports||Trade Deficit / Surplus|
|Merchandise (Apr-20)||$10.36 bn||$17.12 bn||$(-6.76) bn|
|Services-Apr (Estimate)||$17.60 bn||$10.68 bn||$+6.93 bn|
|Overall Surplus (Apr)||$+0.16 bn|
After a very long time, India’s overall forex trade move into a surplus with the surplus on the services trade exceeding the deficit on merchandise trade; albeit marginally. This will be a major boost for the current account position but the real challenge is to get back the overall trade volumes.
Stimulus 3.0: Getting trade volumes back to normal
In the month of February, the Federation of Indian Export Organization (FIEO) had cautioned that the sharp fall in overall trade could have ramifications for GDP, tax revenues and jobs. We are already seeing these factors at play. FIEO had warned that 40% compression in overall lndia trade could wipe out nearly 1.50 crore jobs in India. If the latest CMIE data on jobs is any indication, then the situation is perhaps more serious. It only underlines that Stimulus 3.0 has to be entire dedicated to boosting exports.
The sharp fall in trade volumes is definitely not sustainable. The economic stimulus has already focused on MSMEs, vulnerable sections and agriculture. It is time to have a dedicated focus on exports (perhaps even Stimulus 3.0). To avoid structural damage to the trade engine, the need of the hour is a combination of interest-free loans for exporters, compensation of lockdown losses, export subsidies, extension of waiver on EPF and ESIC contributions, interest subsidy benefits etc. Deficit and surplus are more of academic interest now. The real focus of Stimulus 3.0 has to be on reviving exports.