India's trade deficit narrows to $6.77 bn in August; Exports decline by 13%

Firstly, the recovery in merchandise imports lost steam in August 2020, with only a mild narrowing in the pace of contraction to 26% from 28.4% in July 2020, which benefited from the spike in gold imports.

Sep 16, 2020 11:09 IST India Infoline News Service

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The trade deficit for August 2020 was estimated at USD 6.77 billion as against the deficit of USD13.86billion in August 2019, which is a decline of (-)51.14%.

Imports declined by 26% to $29.47 billion in August as compared to a shortfall of $13.86 billion in the same month last year, as per Ministry of Commerce & Industry data.

Aditi Nayar, Principal Economist, ICRA Ltd in trade data said that the sequential rise in the merchandise trade deficit to US$6.8 billion in August 2020 from US$4.8 billion in July 2020, was entirely driven by a surge in gold imports, reflecting pent up demand as well as elevated prices. With consumption trends likely to adjust to a new normal with the further reopening of the Indian economy, imports of gold may increase further in the run-up to the festive and marriage season.

The merchandise trade data for August 2020 reveals some unpalatable trends. Firstly, the recovery in merchandise imports lost steam in August 2020, with only a mild narrowing in the pace of contraction to 26% from 28.4% in July 2020, which benefited from the spike in gold imports. Moreover, the de-growth in both headline and non-oil merchandise exports worsened in August 2020, a relapse of the healthy recovery recorded since May 2020, serving as a reminder of the likely hiccups ahead before the economy normalises from the impact of the ongoing crisis.

Within merchandise imports, a handful of items such as gold, fertilisers, pharmaceuticals, pulses, and fruits and vegetables recorded a yoy rise in August 2020. However, the pace of contraction remained deep for most of the other items, partly reflecting the correction in commodity prices amid a muted pickup in demand with the gradual improvement in economic activity.

Additionally, the pace of contraction in services imports and exports deepened in July 2020 relative to the previous month, although the size of the services surplus recorded a double-digit expansion over the July 2019 level.

Based on the available trends, we expect the current account balance to post a surplus of US$ 7-10 billion in Q2 FY2021, Aditi Nayar said.

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