One important parameter to look at is the overall trade. It represents the aggregate of exports and imports. For the month of Dec-20, the overall trade climbed to a yearly record level of $69.74 billion. December was also the month when the divergence between the growth of exports and imports sharply widened. While exports were up 15.4% between Nov-20 and Dec-20, the merchandise imports were up sharply by 27.55%. This dichotomy explains why the trade deficit widened sharply to $15.44 billion mark.
Exports grew in Dec-20, but lagged imports in a big way
It is actually ironic that India has been getting back to pre-COVID levels of trade deficit at a time when China is reporting record trade surplus. Monthly exports are close to the upper band for the year but imports have surged sharply and are now higher than pre-COVID levels.
Exports at $27.15 billion in Dec-20 were marginally up 0.14% on a yoy basis. There were some star export performers in Dec-20. Exports of cereals (+278.23%), Oil Meals (+196.92%), Iron Ore (+69.26%), Processed Foods (+47.14%), Jute (+21.93%), Handicrafts (+21.78%), Carpets (+21.17%), Ceramic Products (+19.56%), Drugs & Pharma (17.47%), Spices (+17.30%) and Electronic Goods (+16.51%) were stand-out performers.
There were quite a few export laggards too. Petroleum Products (-35.35%), Oil Seeds (-31.62%), Leather (-17.73%), Coffee (-16.38%), Textiles (-15.05%), Yarn (-14.56%), Marine Products (-14.25%) and Cashew (-12.04%) were a drag on exports. For the first 9 months of FY21, merchandise exports were down -15.73% at $200.80 billion.
Imports surged to yearly record in Dec-20
Merchandise imports for Dec-20 stood at $42.59 billion, 7.56% higher on yoy basis. However, imports were sharply up 27.55% on sequential basis. Crude oil imports at $9.58 billion were lower by 10.61% yoy but higher by 50% sequentially. Higher crude prices are taking its toll. With Brent close to $57/bbl and oil demand picking up, crude is likely to widen the merchandise trade deficit in coming months.
Apart from oil, imports were lower for other items too in Dec-20. On a yoy basis, the fall was (-32.05%) for transport equipment, (-24.42%) for minerals, (-7.27%) for coal, coke & briquettes and (-1.54%) for optical goods. For the 9 months of FY21 total imports stood at $258.27 billion, down 29.08% yoy.
Overall trade surplus is positive but shrinking
In the first 9 months of FY21, combined surplus of merchandise and services trade shrank by $8.37 billion over Nov-20 to $5.22 billion. Clearly, the surplus on services has not kept pace with merchandise deficit in Dec-20.
|Particulars||Exports ($ bn)||Imports ($ bn)||Surplus / Deficit ($ bn)|
|Merchandise trade||$200.80 bn||$258.27 bn||$(-57.47) bn|
|Services Trade #||$147.69 bn||$85.00 bn||$+62.69 bn|
|Overall Trade||$348.49 bn||$343.27 bn||$+5.22 bn|
For the month of Dec-20, the merchandise trade deficit was at (-$15.44) billion while services trade surplus was $7.07 billion resulting in an overall trade deficit of $(-8.37) billion. That reduced the cumulative overall surplus for FY21, which is just about in positive now.
Oil could be the risk and pharmaceuticals the opportunity
In the first 9 months of FY21, India reported overall trade surplus of $5.22 billion. The surplus in services trade is almost constant but merchandise trade deficit has been rapidly burgeoning in last few months. Here are some takeaways.
- The vaccine-driven growth expectations combined with supply cuts by Saudi Arabia and falling US stockpiles are likely to put pressure and take crude closer to $60/bbl.
- The big opportunity could be in the pharma space as India is likely to emerge as a hub for vaccines in the next few months as inoculation takes off globally.
- The other segment that could see a positive growth is the auto sector where two wheelers have shown more traction in the export market than in Indian markets.
- The good news is that the exports are getting back to pre-COVID levels but oil could be the question mark and could push imports sharply higher.