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Nov-21 Trade deficit widens to $22.91 billion, on import surge

The month of Nov-21 was the 8th successive month when merchandise exports stayed above $30 billion. However, there is an area of concern on the export front. The export figure at $30.04 billion for Nov-21, is the lowest in the last 9 months and has seen substantial loss of momentum compared to the Jul-Oct period this fiscal year.

December 15, 2021 11:59 IST | India Infoline News Service
The month of Nov-21 was the 8th successive month when merchandise exports stayed above $30 billion. However, there is an area of concern on the export front. The export figure at $30.04 billion for Nov-21, is the lowest in the last 9 months and has seen substantial loss of momentum compared to the Jul-Oct period this fiscal year.

The reason for the weak export performance in Nov-21 can be attributed to a number of factors. China has been cutting down on a lot of its commodity demand. There are practical supply chain constraints like the availability of containers that is constraining exports. Above all, the rupee does not reflect the macroeconomic risks and that is curbing export growth.

In Sep-21 and Oct-21, the total trade (aggregate of exports and imports) was above $90 billion. In comparison, the total trade is just about $83 billion in Nov-21. Total trade is a good barometer of MSME orders, government revenues and job creation. However, one ungainly result is that the trade deficit has widened to a 1-year high of $22.90 billion.

Data Source: DGFT

A clearer picture emerges when you look at the trade numbers on a sequential basis. Compared to Oct-21, exports were down -15.74% while the imports were down -4.41%. If you compare with pre-COVID levels of November 2019, merchandise exports are up 16.55% while merchandise imports are up by 37.44%. Even as trade infrastructure constraints remain, the growth over pre-COVID levels is a source of comfort for merchandise trade.

Nov-21 exports tapered sharply on sequential basis

Exports at $30.04 billion in Nov-21 were up 27.16% yoy but down -15.74% M-O-M. This can be partially attributed to the pandemic, but exports have also grown 16.55% over 2019, indicating that exports are actually robust. Here are the star performers.

There were several star export performers in Nov-21. Exports of Petroleum Products (+154.22%), Coffee (+67.12%), Plastic & Linoleum (+42.81%), Cotton Yarn (+40.72%), Engineering Goods (+36.98%), Cereals (+35.14%), Chemicals (+32.54%), Leather Products (+30.47%), Jute (+30.11%) and Electronic Goods (+29.83%) were growth drivers in Nov-21.

However, there were some export laggards too, like Iron Ore (-92.98%), Oil Meals (-25.51%), Tobacco (-18.21%), Tea (-12.62%) oil seeds (-11.44%) and Gems & Jewellery (-11.10%). Non petroleum and non-jewellery exports in Nov-21 stood at $23.68 billion against $19.37 billion in Nov-20. Cumulative value of exports for Apr-Nov was up 51.34% yoy at $263.57 bn.

Imports taper marginally in Nov-21 but gold imports still high

Merchandise imports for Nov-21 stood at $52.94 billion, up 56.58% yoy. Imports were down -4.41% sequentially. Crude oil imports at $14.68 billion in Nov-21 were higher by 132.43% yoy. However, the good news is that crude imports were almost flat on a sequential basis, indicating that the SPR crude release was having an impact on landed cost of crude.

The major items that showed lower imports on a yoy basis for Nov-21 were (-19.29%) for transport equipment and (-14.70%) for fruits and vegetables. Gold imports at $4.22 billion in Nov-21 was lower compared to $5.10 billion in Oct-21. Cumulative value of imports for Apr-Nov stood at $384.34 billion.

Combined deficit for FY22 widens sharply in Nov-21

For FY22 (Apr-Nov), combined deficit of merchandise and services trade was $(-54.21) billion. The sharply higher merchandise trade deficit, widened the combined deficit by $14.30 billion from $(-39.91) billion to $(-54.21) billion on a sequential basis.

Particulars Exports FY22 ($ bn) Imports FY22 ($ bn) Surplus / Deficit ($ bn)
Merchandise trade $263.57 bn $384.34 bn $(-120.77) bn
Services Trade # $155.17 bn $88.61 bn $+66.56 bn
Overall Trade $418.74 bn $472.95 bn $(-54.21) bn
Data Source: DGFT (# - DGFT estimates due to 1-month lag in RBI reporting)

India ended FY21 with combined deficit of -$12.75 billion. For FY22 (Apr-Nov), India reported combined deficit of $(-54.21) billion. The combined deficit is already 4.25 times the FY21 figure and could widen substantially in FY22, if you extrapolate current levels. That is likely to put pressure on the current account in FY22.

Supply chain constraints are stymying export growth

Let us look at the positive side first. On the positive side Trade is decisively above 2019 levels and export growth is showing traction. However, there 3 areas of concern.
  • While gold imports have come down in November with most of the festive season imports done, the widening trade deficit is not a good signal. India could end FY22, with a trade deficit of well above $200 billion, which could pressure the rupee.
  • Export growth has been curtailed by practical problems like the availability of containers, trade disruption in China, volatile currency equations etc. While the government PLI programs are well conceived, a more robust trade ecosystem is a must. The Omicron risk may have just added on more stumbling block to rapid export growth.
  • Lastly, services exports are providing stability to some extent but the gap between the services surplus and the merchandise trade deficit is becoming unfavourable.
One outcome of this widening trade deficit is already visible in the sustained weakness in the Indian rupee. Curtailing trade deficit should be top on the agenda for the Commerce Ministry.

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