Trade deficit for Nov-20 inches closer to $10 billion mark

For the month of Nov-20, trade deficit touched $9.87 billion; very close to the psychological $10 billion mark.

December 16, 2020 8:17 IST | India Infoline News Service
When India reported a marginal trade surplus of $0.80 billion in Jun-20, the question was whether it was a new paradigm or a flash in the pan. Based on how the trade deficit has panned out in the last few months, it does look like a flash in the pan. For the month of Nov-20, trade deficit touched $9.87 billion; very close to the psychological $10 billion mark.

Data Source: DGFT (Directorate General of Foreign Trade)

One important parameter to look at from an export performance standpoint is the overall trade. It represents the aggregate of exports and imports. For the month of Nov-20, the overall trade slipped below $57 billion. But even as the overall trade has hovered around that mark in last 3 months, exports and imports have diverged sharply. While imports are up 10% between Sep-20 and Nov-20, the merchandise exports are down 15%. This dichotomy explains why the trade deficit has widened rapidly closer to the $10 billion mark.

Exports again prove to be a drag in Nov-20

The revival in economic performance is not reflected in exports. That is a tad disconcerting because at $23.5 billion, the total merchandise exports are almost back to Jul-20 levels. Global slowdown cannotbe the standard refrain because world trade is growing and China trade has picked up in the last couple of months.

Exports at $23.5 billion in Nov-20 are down 8.74% on a yoy basis. However, there were some star export performers in Nov-20. Exports of cereals (+171.63%), Oil Meals(+72.09%), Iron Ore(+68.15%), Rice (+25.88%), Ceramic Products(+21.38%), Handicrafts(+17.99%),Carpets (+15.59%), Spices (+12.37%), Drugs & Pharma (11.15%),Tobacco (+8.64%) and Cotton Yarn (+8.54%) were some highlights.

There were quite a few export laggards too. Petroleum Products(-59.73%), Leather Products(-29.81%), Cashew (-24.53%), Plastics & Linoleum (-23.27%), Marine Products (-16.11%), Oil Seeds (-15.21%), Engineering Goods (-8.12%) and organic/inorganic chemicals (-8.06%) were a drag on exports. For the first 8 months of FY21 (Apr-Nov), merchandise exports were down 17.76% in dollar terms at $173.66 billion.

Imports remain sticky in Nov-20 as crude oil pinches

Merchandise imports for Nov-20 stood at $33.39 billion, 13.32% lower on yoy basis.However, imports were almost flat on a sequential basis. Crude oil imports at $6.27 billion were lower by 43.36%. However, that is misleading as oil imports are up 5% on a sequential basis and Brent Crude has gotten closer to $50/bbl.

Apart from oil, imports were lower for other items too. On a yoy basis, the fall was (-19.62%) for transport equipment, (-13.37%) for electrical machinery, (-12.15%) for coal, coke & briquettesand (-7.16%) for Pearls & precious stones.

Overall trade surplus is positive but shrinking

In the first 8 months of FY21 (Apr-Nov), the combined surplus of merchandise and services trade shrank by $2.93 billion over Oct-20 to $13.59 billion. Clearly, the surplus on services has not been enough to offset the merchandise trade deficit in November 2020. Currently, services trade data is reported by RBI with a 1-month lag and hence it is only illustrative.

Particulars Exports ($ bn) Imports ($ bn) Surplus / Deficit ($ bn)
Merchandise trade $173.66 bn $215.69 bn $(-42.03) bn
Services Trade # $130.60 bn $74.98 bn $+55.62 bn
Overall Trade $304.26 bn $290.67 bn $+13.59bn
Data Source: DGFT (# - DGFT estimates due to 1-month lag in RBI reporting)

For the month of November2020, the merchandise trade deficit was at (-$9.87) billion while services trade surplus was just $6.94 billion resulting in an overall trade deficit of $(-2.93) billion. That reduced the cumulative overall surplus for FY21.

Imports are vulnerable to crude prices; more than before

In the first 8 months of FY21, India had overall trade surplus of $13.59 billion. The overall trade deficit has been diminishing for the last 3 months in succession. Let us look at why oil could be the big risk to trade data.

• The COVID vaccine and the turnaround in global GDP growth have already given a boost to crude oil prices; up 40% in last 2 months.

• Crude oil orders from India and China have been on an uptrend and that shows global demand getting back on track.

• The big supply risk has already come in the OPEC decision to persist with supply cuts. That will surely keep the oil markets undersupplied and prices higher.

• While we need to await the guidance from Joe Biden, he is an advocate of halting fracking on Federal lands. That is not good news for shale supply.

• The brief surge in metal exports appears to have come off, leading to weak export performance. It also raises questions about the underlying strength of SMEs.

Nov-20 has been discouraging in terms of the divergence between exports and imports. The Commerce Ministry may be on track with Atma Nirbhar Bharat; but exports will have to first show growth in the short term. That is the real challenge!

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