The only disappointment for India from a macro perspective was that total trade, measured as the sum of imports and exports, fell to $70.82 billion against a recent peak value of $82.83 billion in Mar-21. Total trade has a significant impact on trade related revenues and also the trade related job creation in the MSME sector.
On sequential basis, exports were higher but imports were sharply lower. This can be partially attributed to supply chain constraints inhibiting flow of imports and partially to a government sponsored export thrust.
Tapering total trade presents key macro challenge
Total trade, measured imports plus exports, for May-21 was down 7.3% over Apr-21 and a much bigger fall of 14.5% over Mar-21. One can argue that fall in imports is good but that misses the point. Lower imports also means lower inputs for export oriented industries and that normally has a long-term negative impact on exports growth. This sharp fall in imports can be attributed to COVID-2.0 related lockdown as well as to a general slowdown in demand. Demand for imported crude is likely to come down this year due to the aggressive ethanol blending adopted by the Indian government.
S&P Global Platts Research has projected India’s import dependence on crude to fall from the current 80% to 70% over the next 2 years as ethanol plays a larger role. While imports at $32.27 billion in May-21 is higher sequentially, it is still lower than March. MSMEs account for 40% of India’s exports and rely heavily on imported inputs and machinery. That food for thought for the policy makers.
Exports up sharply on yoy basis due to weak base effect
If you compare May-21 data with May-20, the export growth numbers are flattering due to the base impact. Nevertheless, here are the export boosters.
Exports at $32.27 billion in May-21 were up 69.35% yoy. This growth is largely optical as May-20 was a peak COVID month and hence export performance was constrained. There were several star export performers in May-21. Exports of Cereals (+847.41%), Jute manufacturing (+256.29%), petroleum products (+227.25%), handicrafts (+192.9%), Gems & Jewellery (+179.13%), Cotton yarn and fabrics (+146.34%), carpets (+107.85%), Electronic Goods (+90.79%), Ceramic Products (+81.57%), Ores & Minerals (+77.07%), and engineering goods (+53.01%) were the big stars of May-21.
There were some export laggards that saw negative growth like fruits & vegetables, oil seeds, drugs & pharmaceuticals, tea and spices. Non petroleum and non-jewellery exports in May-21 stood at $23.97 billion compared to $16.36 billion in May-20. Cumulative value of exports for Apr-May stood at $62.89 billion.
Imports were decisively lower in May-21
Merchandise imports for May-21 stood at $38.55 billion, 73.64% higher yoy. Imports were lower by 15.7% on a sequential basis. Crude oil imports at $9.45 billion in May-21 were higher by 171.10% yoy. While global Brent prices are up 119% on a yoy basis, on a sequential basis, India witnessed a fall in crude import volumes.
There were a number of commodities that showed lower imports on a yoy basis for Apr-21. The fall was (-95.31%) for Silver, (-48.53%) for newsprint and (-42.90%) for pulses. Cumulative value of imports for Apr-May stood at $84.27 billion.
Overall deficit for FY22 narrows marginally in May-21
For FY22 (Apr-May), the combined surplus of merchandise and services was $(-5.85) billion. The surplus on services and the narrowing of the merchandise trade deficit helped to narrow the overall deficit by $1.08 billion from $(-6.93) billion to a level of $(-5.85) billion.
|Particulars||Exports ($ bn)||Imports ($ bn)||Surplus / Deficit ($ bn)|
|Merchandise trade||$62.89 bn||$84.27 bn||$(-21.38) bn|
|Services Trade #||$35.40 bn||$19.87 bn||$+15.53 bn|
|Overall Trade||$98.29 bn||$104.14 bn||$(-5.85) bn|
Data Source: DGFT (# - DGFT estimates due to 1-month lag in RBI reporting)
India ended FY21 with a net overall deficit of just about -$12.75 billion. However, in Apr-21, India had reported an overall deficit of $-6.93 billion, which has narrowed to $-5.85 billion due to the $1.08 billion overall trade surplus in the month of May. This trend, if it gets extrapolated, could be favourable for the current account deficit in FY22.
May-21 has given room for hope on the trade front
Despite the COVID impact, India managed to report an overall surplus of $1.08 billion for May-21, including the impact of services trade. Firstly, can India cut its oil import bill on a sustainable basis via ethanol strategy? Secondly, rural and MSME stress is likely to impact exports. Finally, it remains to be seen if the overall deficit can be improved through the services route. That would be good news for the current account deficit number!