Over the last few months, India’s merchandise trade has been the one segment to show visible growth above the pre-COVID levels. In the latest GDP data, it became evident that the thrust to GDP actually came from trade. This does not conceal the fact that trade deficit, albeit lower than Sep-21, remained elevated at $19.73 billion.
In the last 2 months, the total trade (aggregate of exports and imports) has been consistently above $90 billion. Total trade is a good indicator of MSME orders, government revenues and job creation. While the merchandise trade deficit and the trade deficit with China are concerns, total trade at elevated levels is a signal of robust trade activity.
On sequential basis, exports were up 5.5% while the imports were down -1.8%. If you compare with pre-COVID levels of October 2019, merchandise exports are up 35.89% while merchandise imports are up by 45.77%. The growth in total trade over and above the October 2019 levels indicates that trade has been first off the block in economic recovery.
Oct-21 exports steady, but focused on early value chain
Exports at $35.65 billion in Oct-21 were up 43.05% yoy. This can be partially attributed to the pandemic, but exports have also grown decisively over 2019, indicating that exports are actually robust. Sequential export growth improved to 5.5%. Let us look at star performers.
There were several star export performers in Oct-21. Exports of Petroleum Products (+240.23%), Coffee (+80.73%), Engineering Goods (+50.89%), Cotton Yarn (+46.2%), Gems & Jewellery (+44.23%), Chemicals (+41.93%), Electronic Goods (+39.51%), Fruits/Vegetables (+34.03%), Plastic & Linoleum (+30.51%) and Mica, Coal & Ores (+30.39%) were the big growth stories of Oct-21.
However, there were some export laggards too, like Iron Ore (-76.70%), Oil Meals (-50.66%), Oil Seeds (-16.25%), Tea (-10.85%) and Ceramic Products (-6.60%). Non petroleum and non-jewellery exports in Oct-21 stood at $26.09 billion against $20.43 billion in Oct-20. Cumulative value of exports for Apr-Oct period was up 55.13% yoy at $233.54 bn.
Imports taper in Oct-21 but gold imports remain a concern
Merchandise imports for Oct-21 stood at $55.37 billion, up 62.51% yoy. Imports were down -1.8% sequentially. Crude oil imports at $14.43 billion in Oct-21 were higher by 140.47% yoy. However, the good news is that crude imports were down -17.3% sequentially, indicating that pressure of Brent prices may be abating gradually.
The major commodities that showed lower imports on a yoy basis for Oct-21 were (-80.21%) for Project Goods, (-28.75%) for fertilizers, (-10.11%) for transport equipment and (-6.54%) for fruits and vegetables. Gold imports at $5.10 billion was more than twice the level of $2.50 billion in Oct-20. Cumulative value of imports for Apr-Oct stood at $331.39 billion.
Combined deficit for FY22 widens further in Oct-21
For FY22 (Apr-Oct), combined deficit of merchandise and services trade was $(-39.91) billion. The sharply higher merchandise trade deficit, widened the combined deficit by $11.28 billion from $(-28.63) billion to $(-39.91) billion.
|Particulars||Exports FY22 ($ bn)||Imports FY22 ($ bn)||Surplus / Deficit ($ bn)|
|Merchandise trade||$233.54 bn||$331.39 bn||$(-97.85) bn|
|Services Trade #||$135.85 bn||$77.91 bn||$+57.94 bn|
|Overall Trade||$369.39 bn||$409.30 bn||$(-39.91) bn|
India ended FY21 with combined deficit of -$12.75 billion. For FY22 (Apr-Oct), India reported combined deficit of $(-39.91) billion. The combined deficit is already 3 times the FY21 figure and could widen to over 5 times the FY21 levels, if you extrapolate current levels. That is likely to put pressure on the current account in FY22.
India must focus on gold imports and China trade deficit
On the positive side two trends emerge. Trade is decidedly above 2019 levels and export growth is showing traction. However, there are three challenges.
- Gold imports continue to be a challenge. Total gold imports were steady at $5.1 billion in Oct-21, twice the level of last year. That is a challenge for RBI as precious forex is being spent on unproductive gold imports.
- In FY21, imports from China were lower at $44 billion. However, in FY22 India’s trade deficit with China already stands at $54.37 billion for the Apr-Oct period, accounting for 55.6% of India’s overall cumulative trade deficit for the year to date.
- Lastly, services exports are providing stability but the gap between the services surplus and the merchandise trade deficit has been consistently widening.
Mr. Piyush Goyal has been setting lofty targets for exports but the traction at the ground level is yet to be seen. That must be the next big item on the macro agenda.