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|
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!