Exports growth narrows trade deficit further in Sep-20

The merchandise exports for Sep-20 was 6% higher on a yoy basis but was nearly 21% higher on a mom basis.

Oct 19, 2020 08:10 IST India Infoline News Service

The big story for September 2020 on the trade data front was on exports. The merchandise exports for Sep-20 was 6% higher on a yoy basis but was nearly 21% higher on a mom basis. This sharp sequential growth is evident from the fact that the exports are finally back to the pre-COVID levels last witnessed in Feb-20.

More importantly, the overall trade, which is the aggregate of exports and imports, touched $58 billion levels. That is still 10% lower than last year’s levels but that is explained more by the sharp fall in Brent Crude prices and the resultant savings in the oil import bill. The chart below captures the gist of the trade performance for the month of Sep-20.

Data Source: DGFT (Directorate General of Foreign Trade)

Trade deficit for the month of Sep-20 considerably narrowed to $2.73 billion, compared to a trade deficit of $6.77 billion in Aug-20. It may be recollected that that India had briefly reported a trade surplus of $0.80 billion in the month of Jun-20 after a very long gap.The chart above shows that starting in Apr-20, the export performance is up nearly 3-fold while the overall trade is up more than twice. The good news is the renewed performance of exports in the month of September.

Exports show smart recovery to pre-COVID levels in Sep-20

Merchandise exports are up nearly 2.7 times from the lows of the pandemic. Last month we had suggested that exports were struggling to move higher and in Sep-20 we have been proved wrong as exports have grown 21% on a sequential basis. Let us look at the actual trade numbers. Merchandise exports for Sep-20 stood at $27.58 billion, a rise of (+6%) on a yoy basisand a robust growth of 21% on a sequential basis.

There were some star export performers in the month of Sep-20 that drove this shift. For example, exports of cereals (+327.22%), Iron Ore(+109.65%), Rice (+93.86%), Oil Meals (+47.52%), Carpets (+42.89%), Ceramic Products (+36.17%), Oil Seeds (+35.69%)and pharmaceuticals (+24.38%) were some of the star export performers.

Of course, there were some export laggards too. For example, Cashew (-44.25%), Gems & Jewelry(-24.67%), man-made yarn (-9.12%), Minerals (-6.71%), Marine products (-5.41%), Leather products (-3.36%) and Teaat (-2.27%). For the Apr-Sepperiod, exports were down 21.31% at $125.25 billion.

Imports flat on sequential basis for Sep-20

Merchandise imports for Sep-20 stood at $30.31 billion, a fall of (-19.61%) on a yoy basis in dollar terms.However, imports were almost flat compared to the previous month of Aug-20. Crude oil imports at $5.83 billion were lower by (-35.88%) as Brent Crude came under pressure after the US fiscal stimulus got delayed. The rise in COVID cases and the likelihood of a second wave kept oil prices under pressure.

Apart from oil, imports were lower in other items too. For example, on a yoy basis, the fall was (-47.08%) for transport equipment, (-36.76%) for machinery, (-4.89%) for pearls & precious stones and (-2.48%) for organic &inorganic chemicals.

Overall trade surplus is good news for CAS

In the first 6 months of FY21 (Apr-Sep), the combined trade surplus of merchandise and services increased further to $17.74 billion. It needs to be noted that services trade data is reported by the RBI with a 1-month lag.

Particulars Exports ($ bn) Imports ($ bn) Surplus / Deficit ($ bn)
Merchandise trade $125.25 bn $148.69 bn $(-23.44) bn
Services Trade # $96.62 bn $55.44 bn $+41.18 bn
Overall Trade 221.86 bn $204.12 bn $+17.74 bn
Data Source: DGFT (# - DGFT estimates due to 1-month lag in RBI reporting)

For the month of August 2020, the merchandise trade deficit was at (-$2.73) billion while services trade surplus was at $6.84 billion resulting in an overall trade surplus of just $4.11 billion. This is likely to be positive for the current account surplus (CAS) figure this year.

Key trends to watch keep a tab in the second half

The Indian economy has closed the first half of FY21 with an overall surplus of $17.75 billion. However, here are some key trends to watch out for.

• There has been a resurgence of COVID cases in Europe and the US and that is not great news for exports and overall trade.

• India has to work on GDP push as IMF has already estimated GDP contraction at (-10.5%) for FY21. Private estimates are much more pessimistic.

• Brent Crude prices stayed below $40/bbl and that has helped the trade deficit. At this point of time, any sharp spike in oil looks unlikely, which is a favorable trend.

• The surge in exports in metals and minerals has been led by China. The geopolitical implications of such a move cannot be ignored.

For Sep-20, the good news is that exports appear to be finally back on track to pre-COVID levels. The real challenge is managing growth of the supporting domestic economy.

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