One important metrics you normally look at to check robustness of trade is the overall trade which is the sum of exports and imports. For Feb-21, the total trade value at $68.47 is almost at par with the levels of Dec-20 and Jan-21.
Trade growth has been driven by imports than by exports
If you look at trade numbers post the exceptional COVID period between March and May last year, the biggest growth in total trade has come from imports rather than exports. If you compare the September 2020 figure with the February 2021 figure, the total exports are at the same level while the total imports are up 33%, largely driven by higher crude oil prices in this period. India needs a much bigger focus on exports as there is a natural risk on the import side from crude oil and gold. Even the Atma Nirbhar program is likely to front-end some import intensity putting further pressure on the trade deficit. The argument will become clearer when we compare India trade with China trade performance for 2021.
Trade deficit narrows in Feb-21, but flat exports is the challenge
In a sense, the import bill is less of a controllable factor. The gems & jewellery industry needs to import gold and India still relies on imports for ~80% of its daily crude needs. That is why flat exports pose a bigger challenge for India.
Exports at $27.93 billion in Feb-21 were up a tepid 0.67% yoy. There were some star export performers in Feb-21. Exports of cereals (+546.50%), Oil Meals (+245.45%), Iron Ore (+167.79%), Jute (+45.53%), Rice (+30.78%), Meat & Dairy (+26.43%), Processed Foods (+25.30%), Carpets (+19.46%), Spices (+18.61%), Pharma (+14.74%), Handicrafts (+13.23%), Ceramic Products (+11.04%), Cotton Yarn (+9.41%) and Tobacco (+7.71%) were stand-out performers. The export leaders were more in the primary categories.
There were quite a few export laggards too. Oil seeds (-25.90%), Leather Products (-21.62%), Petroleum Products (-20.87%), Cashew (-18.62%), Gems & Jewellery (-11.19%), Textiles (-8.50%), Electronic Goods (-5.77%) and Fruits & vegetables (-3.33%) were a drag on exports. For the first 11 months of FY21, merchandise exports were down 12.23% at $256.18 billion.
For Feb-21, imports have been the driver of merchandise trade
Merchandise imports for Feb-21 stood at $40.54 billion, 6.96% higher yoy. Imports were lower by 3.45% on a sequential basis. Crude oil imports at $8.99 billion were lower by 16.63% yoy. With Brent Crude prices crossing $70/bbl, imports are driving the trade deficit.
Apart from oil, imports were lower for other items too in Feb-21. On a yoy basis, the fall was (-28.09%) for coal, coke & briquettes, (-23.13%) for transport equipment, (-4.87%) for electrical & non-electrical machinery and (-1.42%) for pearls & semi-precious stones. For the 11 months of FY21 total imports stood at $340.80 billion, down 23.11% over corresponding period of previous fiscal year.
Overall trade balance slips deeper into deficit
For FY21 (Apr-Feb), the combined surplus of merchandise and services trade shrank by another $5.93 billion over Jan-21 to $(-7.80) billion. Clearly, the surplus on services has not kept pace with merchandise deficit in Feb-21 and hence overall gap has widened.
|Particulars||Exports ($ bn)||Imports ($ bn)||Surplus / Deficit ($ bn)|
|Merchandise trade||$256.18 bn||$340.80 bn||$(-84.62) bn|
|Services Trade #||$183.46 bn||$106.64 bn||$+76.82 bn|
|Overall Trade||$439.64 bn||$447.44 bn||$(-7.80) bn|
For Feb-21, merchandise trade deficit stood at $(-12.61) billion while services trade surplus was $6.68 billion resulting in an overall trade deficit of $(-5.93) billion deepening the cumulative deficit for FY21. This figure had slipped from a surplus to deficit only in Jan-21.
Look, China is doing wonders on merchandise trade
The Indian trade scene and the Chinese trade scene cannot be compared due to differences in infrastructure and scale. However, if there is one economy India should look at for post-COVID trade lessons, it is China. Here is why.
For Jan-Feb 2021, China reported total merchandise exports of $469 billion. During these 2 months, their total imports were $366 billion resulting in a merchandise trade surplus of $103 billion just for Jan and Feb combined. For all the proponents of the Sino-US trade war theory, nearly 50% of this trade surplus came from Chinese exports to the US and China’s exports to the US were up 81% in the first 2 months on a yoy basis. That is the model for Indian trade to emulate!