Global slowdown leaves its mark on India’s March trade data

Overall trade (exports + imports) compressed sharply from a high of $80 billion in May 2019 to $52 billion in March 2020.

April 20, 2020 8:57 IST | India Infoline News Service
A cursory look at the merchandise trade data chart below tells two things. Firstly, the level of trade deficit has come down during the year from $15.33 billion to $9.75 billion. That is positive for the external value of the rupee and for sovereign rating of Indian bonds. Also, the volume of trade has shrunk substantially in last one year; largely due to the combination of weak global demand and worsening Coronavirus situation globally.

Data Source: NSE

Overall trade (exports + imports) compressed sharply from a high of $80 billion in May 2019 to $52 billion in March 2020. This drop can be attributed to three factors. Firstly, the trade war lasted through most of FY20 and impacted trade in China and the US. Secondly, crude oil prices have fallen from a high of $70/bbl to $25/bbl and the impact is pronounced on India as it relies on imported crude for ~85% of daily needs. Lastly, in the March quarter, the trade has been severely affected by the lockdowns and trade restrictions in the light of the Coronavirus pandemic.

How exports performed in March 2020?

Merchandise exports for Mar-20 were at $21.41 billion, a sharp fall of (-34.57%) yoy. Clearly, the global lockdowns across key markets had its impact on exports. The exports from India have not only been hit by global demand factors but also the ability of Indian manufacturers to produce in the midst of the lockdown. The disruption of supply chains from China also had a deep impact on Indian manufacturers. Among specific sectors, iron ore showed a healthy 58.4% growth in exports for March 2020. On a yoy basis, oil mills registered negative growth in exports by (-69.85%). Other sectors like meat, poultry, engineering goods, gems & jewellery saw negative growth in exports of over (-40%). Product groups like plastics, carpets, mica, tea, cereals, organic chemicals and yarn saw a fall of over (-30%).

How imports panned out in March 2020?

Merchandise imports for Mar-20 stood at $31.16 billion, a fall of (-28.72%) on a yoy basis. Crude oil imports at $10.01 billion were lower by (-15%) on a yoy basis. Despite the storage demand for crude being buoyant, the sharp fall in the price of Brent Crude to $30/bbl has resulted in a sharply lower oil import bill. There were deep cuts in other imports too. There was a 53.5% fall in precious stones imports, 31.72% fall in electrical machinery, 29.09% fall in electronic goods and a 23.5% fall in coal and coke. Transport equipment was the only segment to see positive 11.9% growth in imports for March 2020.

Services exports continued to be robust

In the midst of the hassles faced by merchandise trade, services trade has continued to be robust and that is good news for the CAD. For the month of Feb-20 (services trade reported by RBI with 1-month lag), services exports stood at $17.73 billion (up 6.88%) and the services imports stood at $11.07 billion (up 12.82%). This leaves a services trade surplus of $6.66 billion. 
Period Exports Imports Trade Deficit / Surplus
Merchandise (Mar) $21.41 bn $31.16 bn $(-9.75) bn
Services-Mar (Estimate) $17.69 bn $10.97 bn $+7.72 bn
Overall Deficit (Feb) $(-2.03) bn
Fiscal Year 2019-20
Merchandise (FY20) $314.31 bn $467.19 bn $(-152.88) bn
Services-FY20 (Estimate) $214.14 bn $131.41 bn $+82.73 bn
Overall Deficit (FY20) $(-70.15) bn

The weekly forex reserves at $475 billion can cover full year merchandise imports of $467 billion more than once. The forex reserves can now cover the merchandise trade deficit 3 times and the overall deficit nearly 7 times; at par with BRICS in terms of forex comfort.

But, here is why FIEO is worried about full year data

The Federation of Indian Export Organization (FIEO) has cautioned that the sharp fall in overall trade (imports + exports) could have serious ramifications for output, tax revenues and jobs. FIEO has warned that 40% compression in overall lndia trade could wipe out nearly 1.50 crore jobs in India. Many of these jobs will be in the SME and MSME sector as they continue to contribute to bulk of export trade. FIEO has cautioned that nearly 50% of all export orders have been cancelled.

Apart from job losses, FIEO has also cautioned that the current situation could lead to a sharp rise in loan defaults by export oriented companies as the operating and financial leverage of most of these exporters is fairly limited. FIEO has pointed out that if a rescue package for exporters is not immediately implemented it could result in structural damage to overall trade. FIEO has called for interest-free loans, coverage of lockdown losses, waiver on EPF and ESIC contributions for 3 months, extension of pre and post shipment credit, interest subsidy  benefits etc. For now the deficit and surplus numbers will matter less than trade volumes. That could be the big challenge for the government.

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