Overall trade (exports + imports) has compressed in the last one year from closer to $80 billion per month to around $65 billion for the month of February 2020. However, the positive take away from the trade data for Feb-20 is that the merchandise trade deficit has come below $10 billion for the first time during the fiscal year. Let us look at the key export and import drivers for the month of Feb-20.
Key drivers of exports and imports – Feb 2020
Merchandise exports for the month of Feb-20 came in at $27.65 billion, exhibiting a growth of 2.91% on a YOY basis. In rupee terms, the exports were higher by 3.29% on a YOY basis, indicating a marginal loss due to rupee weakening. Among specific sectors, the electronics goods segment showed the best growth in exports at 37.05% on a YOY basis followed by organic and inorganic chemicals at 16.33%. Both engineering goods and pharmaceuticals showed a growth of over 8% in February. This is especially creditable because all these sectors have been hit by the supply chain disruption due to the Coronavirus pandemic in China. Let us now turn to the imports for Feb-20.
Merchandise imports for Feb-20 came in at $37.50 billion, a growth of 2.48% on a YOY basis. Crude oil imports at $10.76 billion were well under control, thanks to low oil prices. Among the import bill cuts, the China impact was visible once again. There was a 26.16% fall in iron and steel imports and a 6.66% fall in electronic imports; both a case of supply chain disruption from China. With gold prices close to all-time highs, even gold imports were down by 8.53%. This should come as a relief since regulators scoff at unproductive gold imports.
Forex import cover gets more comfortable
One positive outcome of the fall in imports is that the forex import cover has improved. If you look at the cumulative data for the first 11 months of the current fiscal, total exports were down by just 1.5% at $292.91 billion. During the same period, the total imports were down by 7.3% at $436 billion. The cumulative trade deficit at $143.12 billion in the first 11 months is clearly more comfortable compared to the nearly $200 trade deficit that India had scaled in the previous years.
But the bigger takeaway is the impact on the forex cover. For a BRICS nation that is largely import dependent on oil, forex coverage of 10-11 months is considered to be comfortable. In 2018, forex reserves had depleted and the cover had fallen as low as 9 months. In the current fiscal, the annual import bill would work out to around $475 billion. With a forex chest of $487 billion, the forex cover is now closer to 12-13 months of imports. More importantly, the forex reserves are sufficient to cover the annual merchandise trade deficit 3 times over. That reduces the pressure on the rupee and cheap oil should only add to trade dividends.
Services exports have turned robust
Over the last 2 decades, India has consistently run a deficit in merchandise trade and a surplus in services trade. For the month of Jan-20 (services trade is reported by RBI with a 1-month lag), services exports stood at $18.99 billion and the services imports stood at $12 billion, leaving a services trade surplus of $6.98 billion. Here is how the fiscal figures will look like for the combined deficit.
|Period||Exports||Imports||Trade Deficit / Surplus|
|Merchandise (Feb)||$27.65 bn||$37.50 bn||$(-9.85) bn|
|Services (Feb - est.)||$19.47 bn||$12.43 bn||$+7.04 bn|
|Overall Deficit (Feb)||$(-2.81) bn|
|Year to Date|
|Merchandise (Apr-Feb)||$292.91 bn||$436.03 bn||$(-143.12) bn|
|Services (Apr-Feb - est.)||$198.73 bn||$123.42 bn||$+75.31 bn|
|Overall Deficit (Apr-Feb)||$(-67.81) bn|
One key take away from the trade data has been that the services trade has remained robust and helped reduce the merchandise trade deficit substantially. February data also hints at limited impact on Indian trade and impressive managemnet of supply chain disruptions; especially in sectors like electronics and pharmaceuticals.