Secondly, the overall trade value as measured by the sum of merchandise exports and imports sustained closer to $70 billion, which is good for trade robustness. Monthly exports in Jan-21 were closer to the upper end of the range in the last one year but oil imports in the midst of elevated crude prices may be offsetting most of the export advantage.
Why the overall trade matters
The overall trade represents the aggregate of exports and imports. For the month of Jan-21, the overall trade stood at a level of $69.44 billion; almost at the same level as in Dec-20. In the midst of these aggregate numbers, the divergence has been favorable to exports. For instance, the export growth on a yoy basis was at 6.16% while the import growth yoy was lower at 2.03%. Unlike Dec-20, when divergence favoured imports, the divergence in Jan-21 is favouring the exports. That is a good signal. The ability of trade to contribute to GDP and to jobs is contingent on the overall trade numbers.
Exports robust in Jan-21, but trade deficit still too wide
In the month of Dec-20 and Jan-21, the overall trade deficit has averaged $15 billion per month. This is despite the fact that the monthly exports in Jan-21 are close to the upper band over the last one year. It is just that imports have surged sharply too.
Exports at $27.45 billion in Jan-21 were up 6.16% yoy. There were some star export performers in Jan-21. Exports of cereals (+343.57%), Oil Meals (+257.50%), Iron Ore (+108.84%), Processed Foods (+44.84%), Jute (+27.68%), Rice (+26.33%), Tobacco (+26.16%), Fruits & vegetables (+24.34%), carpets (+23.69%), Handicrafts (+21.09%), Spices (+20.36%), Ceramic Products (+19.03%), Engineering Goods (18.81%) and Pharmaceuticals (+16.42%) were stand-out performers. The export leaders were the same as last month.
There were quite a few export laggards too. Petroleum Products (-32.06%), Leather Products (-18.60%), Textiles (-10.73%), Yarn (-9.62%), Dairy Products(-8.03%), Oil Seeds (-6.49%), Marine Products (-1.72%) and Gems & Jewellery (-1.26%) were a drag on exports. However, in most products, the extent of fall has reduced sharply. For the first 10 months of FY21, merchandise exports were down -13.58% at $228.25 billion.
Jan-21 imports remain at elevated levels
Merchandise imports for Jan-21 stood at $41.99 billion, 2.03% higher yoy. Imports were marginally lower on sequential basis. Crude oil imports at $9.40 billion were lower by 27.72% yoy. With Brent Crude prices crossing the $62/bbl, it is surely taking its toll on the trade deficit.
Apart from oil, imports were lower for other items too in Jan-21. On a yoy basis, the fall was (-25.26%) for transport equipment, (-11.57%) for fertilizers, (-4.57%) for ores & minerals and (-1.37%) for electrical and non-electrical machinery. For the 10 months of FY21 total imports stood at $300.26 billion, down 25.92% over the corresponding period last year.
Overall trade balance slips into deficit after a long gap
For FY21,till date, combined surplus of merchandise and services trade shrank by $7.09 billion over Dec-20 to $(-1.87) billion. Clearly, the surplus on services has not kept pace with merchandise deficit in Jan-21, so the overall gap has slipped into deficit for the first time in the current financial year.
|Particulars||Exports ($ bn)||Imports ($ bn)||Surplus / Deficit ($ bn)|
|Merchandise trade||$228.25 bn||$300.26 bn||$(-72.01) bn|
|Services Trade #||$168.35 bn||$98.21 bn||$+70.14 bn|
|Overall Trade||$396.60 bn||$398.47 bn||$(-1.87) bn|
For the month of Jan-21, the merchandise trade deficit stood at (-$14.54) billion while services trade surplus was $7.45 billion resulting in an overall trade deficit of $(-7.09) billion. That reduced the cumulative overall surplus for FY21 into a deficit for the first time. This is likely to impact the current account position for the fiscal year 2020-21.
Oil prices and gold demand could be the X-factors
In the first 10 months of FY21, India reported overall trade deficit of $(-1.87) billion. Here are 3 key takeaways which could imply risk for the balance of trade position in the future.
• Crude rallied 60% in 3 months. With OPEC sustaining supply cuts, Biden putting off fracking in Federal lands and global demand picking up, crude oil could move higher.
• The last one year saw tepid gold demand. However, the festive season and the customs duty cuts should help. This could also contribute to the deficit.
• Finally, while the Atma Nirbhar project is on track as a force multiplier, the service sector must o contribute more in the short term. That contribution is almost stagnant and trade policy must focus on the low hanging fruit first.