Sep-24 trade deficit tapers to $20.8 Billion on gold imports ease

17 Oct 2024 , 11:24 PM

QUICK TAKE ON INDIA’S TRADE BASKET IN SEPTEMBER 2024

For the month of September 2024, India reported merchandise trade deficit of 20.78 Billion. This is sharply lower than the merchandise trade deficit of $29.65 Billion in the previous month of August 2024, when gold imports had crossed the $10 Billion mark. India had touched record merchandise trade deficit of $31.5 Billion in October 2023. Let us focus on the products that were the key drivers of the India trade story in September 2024. For the month of September, the top export from India was once again engineering goods at $9.82 Billion, up 10.6% yoy. The other key contributors to the export basket in September 2024 were petroleum products at $4.74 Billion (down -26.7%), Gems & Jewellery at $2.82 Billion (down -11.5%), drugs & pharmaceuticals at $2.57 Billion (up 7.2%), Organic & Inorganic Chemicals at $2.36 Billion (up 11.2%), Electronic goods at $2.07 Billion (up 7.9%), and Ready Made Garments at $1.11 Billion (up 17.3%). Electronic exports appear to have slowed in the month, while there has been a surge in exports of gems & jewellery in September 2024.

Let us now turn to the import story of India trade. No prizes for guessing, but the import basket was led by crude & petroleum products at $12.54 Billion (down -10.4%), electronics goods at $8.47 Billion (up 4.9%), electrical & non-electrical machinery at $4.53 Billion (up 17.4%), gold at $4.39 Billion (up 6.9%), organic & inorganic chemicals at $2.43 Billion (up 13.4%), coal/coke/briquettes $2.30 Billion (down -2.1%), and transport equipment $2.29 Billion (down -0.4%). Gold imports have sobered this month after spiking beyond $10 Billion last month and that has kept the merchandise trade deficit in check. In most other cases, the higher imports are an outcome of higher costs due to supply chain constraints caused by the strife in West Asia. For example, silver imports were up 3-fold yoy in September 2024; thanks to the CEPA trade pact with the UAE.

KNOW INDIA’S KEY TRADING PARTNERS IN SEPTEMBER 2024

Let us first talk about the total exports in September 2024. Out of the total exports of $34.58 Billion, the top 20 countries accounted for $23.8 Billion of these exports. In terms of geographies, the biggest chunk of the exports in September 2024 went to the US at $6.38 Billion (up 5.0% yoy). The other big export destinations for India in September 2024 were United Arab Emirates at $2.91 Billion, the Netherlands at $2.09 Billion, UK at $1.03 Billion, and China at $1.11 Billion. The sharpest spike in yoy exports was visible to Brazil at 42.0%, the Netherlands at 38.6%, and Japan at 36.4% yoy. In addition, exports to the Mexico, UAE, Germany, South Africa, and France also grew in double digits. The ranking on exports were almost similar, even if you considered the year-to-date numbers for the first 6 months of FY25 (April to September).

Let us now turn to the countries from where India imports the maximum products. India’s biggest import source continues to be China, from where India imported goods worth $9.65 Billion in September 2024. The other big import sources for India were United Arab Emirates (UAE) at $5.39 Billion, Russia at $4.82 Billion, the US at $3.25 Billion, Hong Kong at $2.06 Billion, Iraq at $2.02 Billion, and Saudi Arabia at $1.93 Billion. The biggest yoy growth in imports in September 2024 were from United Arab Emirates (UAE), Taiwan, Germany, Vietnam, Japan, and China. The big surge in imports from United Arab Emirates was on account of the free trade agreement (CEPA) signed between India and the UAE. Bulk of these imports emanate from gold and silver. In terms of two of its biggest trading partners; India ran a trade surplus of $3.12 Billion with the US in September 2024, while it ran a trade deficit of  $(8.54) Billion with China. India also runs a fairly large trade deficit with the UAE and a trade deficit with other oil nations like Russia and Iraq.

HOW MERCHANDISE TRADE EVOLVED IN LAST 1 YEAR

Here is the monthly data of merchandise exports, imports, and trade deficit over last one year. The September 2024 trade deficit at $20.78 Billion is sharply lower than August 2024.

Monthly Data	Exports ($ Billion)	Imports ($ Billion)	Total Trade	Trade Surplus / Deficit
Sep-23	34.47	53.84	88.31	-19.37
Oct-23	33.57	65.03	98.60	-31.46
Nov-23	33.90	54.48	88.38	-20.58
Dec-23	38.45	58.25	96.70	-19.80
Jan-24	36.92	54.41	91.33	-17.49
Feb-24	41.40	60.11	101.51	-18.71
Mar-24	41.68	57.28	98.96	-15.60
Apr-24	34.99	54.09	89.08	-19.10
May-24	38.13	61.91	100.04	-23.78
Jun-24	35.20	56.18	91.38	-20.98
Jul-24	33.98	57.48	91.46	-23.50
Aug-24	34.71	64.36	99.07	-29.65
Sep-24	34.58	55.36	89.94	-20.78

Data Source: DGFT

In the last 12 sequential months prior to August 2024, the average monthly exports have been $36.45 Billion while the average monthly imports have been $58.12 Billion. As a result, the average monthly total trade has been $94.57 Billion while the average monthly trade deficit has been $21.67 Billion. However, it must be said here that the trade deficit had stayed under $20 Billion for 5 months in a row between December 2023 and April 2024. However, since May 2024, the merchandise trade deficit has been consistently above the $20 Billion mark for five months in a row.

During the last 13 months, the highest total trade was achieved in February 2024 at $101.51 Billion followed by May 2024 at $100.04 Billion. On the other hand, the lowest total trade was seen in September 2023 at $88.31 Billion and in November 2023 and 88.38 Billion. The highest trade deficit in the last 13 months was seen in October 2023 at $31.46 Billion (also a lifetime high). The lowest trade deficit was visible in the month of March 2024 at $15.60 Billion. If you look at the overall trade basket, India has definitely managed to boost exports of engineering goods, electronic goods, chemicals, gems & jewellery, and pharmaceuticals. However, while the crude is down in the import basket with tapering Brent prices, it is the surge in gold and silver imports that is worrying. However, the much bigger concern would be that 3 countries viz. China, Russia and the United Arab Emirates account for more than 80% of the total merchandise trade deficit in September 2024.

WHAT BOOSTED MERCHANDISE EXPORTS IN SEPTEMBER 2024

Here is a quick look at the star export performers in September 2024, based on the yoy percentage increase in exports. Coffee (+74.8%), Tobacco (+50.9%), Handicrafts (+48.1%), Platics & Linoleum (+28.3%), Spices (+26.7%), Rice (+24.9%), Readymade Garments (+17.3%), June (+16.5%), Cereal Preparations (+15.3%), Carpets (+14.9%), and Oil Seeds (+14.7%) were the key export growth drivers in the month of September 2024. What is encouraging is that some of the traditional export drivers are back in action; including the likes of textiles, jute, coffee, handicrafts etc. Top 5 export destinations, in terms of change in absolute value of exports, and also exhibiting positive growth in September 2024 over September 2023 include The Netherlands (+38.6%), United Arab Emirates (23.8%), the US (5.0%), Brazil (42.0%), and the Japan (36.4%).

WHAT PULLED DOWN MERCHANDISE IMPORTS IN SEPTEMBER 2024

If boosting exports is one way to bring down the trade deficit, the other is import substitution. That happened when India opted for Russian oil over OPEC oil, although the magnitude is now down. More important is the import substitution in sectors like defence and electronics. Major items in the trade basket that showed lower imports yoy in September 2024 included Dyeing / Tanning material (-25.9%), Vegetable Oil (-23.2%), Pearls / Precious stones (-21.6%), Leather & Leather Products (-16.6%), Newsprint (-13.6%), Petroleum, Crude (-10.4%), Artificial Resins (-8.8%), and Coal / Coke / Briquettes (-2.2%). The top 5 import sources, in terms of change in absolute value of imports in September 2024 over September 2023 included United Arab Emirates (49.2%), China (14.5%), Germany (32.5%), Japan (25.7%), and Taiwan (38.2%). For India, the Red Sea crisis remains a double whammy. It has mellowed exports, but it has also pushed up import costs.

TRADE DATA BREAK-UP FOR SEPTEMBER 2024

In India, the Directorate General of Foreign Trade (DGFT) reports merchandise trade data, while services trade data is reported by RBI with a lag of one-month. DGFT provides indicative extrapolated figures of services trade for current month to get a cumulative comparable picture. Services trade surplus partially neutralizes merchandise trade deficit.

Macro Variables (Trade Related)	Sep-24 ($ Billion)	Aug-24 ($ Billion)	Sep-23 ($ Billion)	Change YOY (%)
Merchandise Exports	34.58	34.71	34.41	0.49%
Merchandise Imports	55.36	64.36	54.49	1.60%
Total Merchandise Trade	89.94	99.07	88.90	1.17%
Merchandise Trade Deficit	-20.78	-29.65	-20.08	3.49%
Services Exports	30.61	30.69	28.42	7.71%
Services Imports	16.32	15.70	14.58	11.93%
Total Services Trade	46.93	46.39	43.00	9.14%
Services Trade Surplus	14.29	14.99	13.84	3.25%
Combined Exports	65.19	65.40	62.83	3.76%
Combined  Imports	71.68	80.06	69.07	3.78%
Overall Trade Volume	136.87	145.46	131.90	3.77%
Overall Trade Deficit	-6.49	-14.66	-6.24	4.01%

Data Source: DGFT and RBI

Here is what we glean from the September 2024 analysis of India merchandise and services trade numbers. We shall focus more on the services trade numbers here.

• Services exports in September 2024 were higher 7.71% compared to the year ago period. The services imports were higher by 11.93% yoy. As a result, the services trade surplus in September 2024 increased by just 3.25% on a yoy basis to $14.29 Billion. On MOM basis, the services trade surplus was lower.
• Services trade surplus arises predominantly from export of IT and BPO services. In recent months, non-cyclical verticals like consultancy services to global clients, knowledge and innovation centres, global capability centres (GCC), outsourced legal / audit services etc, have assumed prominence. These have been a key contributor in recent months.
• How did services trade impact the overall picture of trade for September 2024? The deficit on merchandise trade account in September 2024 was wider by just 3.49% yoy at $20.78 Billion. It was sharply down on MOM basis. The services surplus improved 3.25% yoy. As a result, the overall trade deficit for September 2024 stood at $(6.49) Billion, compared to $(14.66) Billion in August 2024; which is sharply lower. This reduces the pressure on the cumulative deficit for FY25, as we shall see subsequently.

Let us now turn our attention to the trade data for FY25, which should be a reasonable extrapolation with 6 months of data available.

CUMULATIVE TRADE DATA BREAK-UP FOR FY25 (APR-SEP)

The DGFT reports merchandise trade data and extrapolated services trade data on a monthly basis and also on a cumulative basis for the fiscal year. Here, with 6 months of data, one can get a fair extrapolation of the picture for the full fiscal year FY25.

Macro Variables (Year-to-Date)	FY25 (Apr-Sep)	FY25 (Apr-Aug)	FY24 (Apr-Sep)	Change YOY (%)
Merchandise Exports	213.22	178.83	211.08	1.01%
Merchandise Imports	350.66	294.06	330.32	6.16%
Total Merchandise Trade	563.88	472.89	541.40	4.15%
Merchandise Trade Deficit	-137.44	-115.23	-119.24	15.26%
Services Exports	180.00	148.04	163.92	9.81%
Services Imports	97.39	78.65	88.86	9.60%
Total Services Trade	277.39	226.69	252.78	9.74%
Services Trade Surplus	82.61	69.39	75.06	10.06%
Combined Exports	393.22	326.87	375.00	4.86%
Combined  Imports	448.05	372.71	419.18	6.89%
Overall Trade Volume	841.27	699.58	794.18	5.93%
Overall Trade Deficit	-54.83	-45.84	-44.18	24.11%

Data Source: DGFT and RBI (Trade data in Billion $)

Here is what we read from the FY25 analysis of India merchandise and services trade numbers. Here FY25 refers to the first 6 months of the fiscal year (Apr-Sep). Our focus, once again, will be on the services trade numbers here.

• Services exports in FY25 were higher 9.81% compared to the year ago period. The services imports were higher by 9.60% yoy; showing a slight pick-up in recent months. As a result, the services trade surplus in FY25 increased by 10.06% on a yoy basis to $82.61 Billion. The key question is; whether this is good enough to cover the deficit on the merchandise trade account? Obviously, this can only cover partially.
• How did services trade impact the overall picture of trade for FY25? The deficit on merchandise trade account in FY25 was wider by 15.26% yoy at $(137.44) Billion. However, this was partially offset by the services surplus, which improved 10.06% to $82.61 Billion. As a result, the overall trade deficit cumulative for FY25 stood at a level of $(54.83) Billion, which is 24.11% wider compared to the first 6 months of FY24.

We finally look at the Million dollar question; What does this array of data mean for the current account deficit (CAD) for the fiscal year FY25? It looks like the current account deficit (CAD) for FY25 could be wider than in FY24, but closer to the CAD achieved in FY23.

CURRENT ACCOUNT DEFICIT OUTLOOK FOR FY25

Till date, we only have real data for the first quarter when current account deficit (CAD) was at 1.1% of GDP. That is sharply higher than the previous year when it was just about 0.6% of GDP. One of the key inputs for the current account deficit (CAD) figure is the overall deficit, combining the merchandise trade deficit and the services trade surplus. It is one of the most important components of the CAD and drives nearly 80% of the moves in the overall CAD. With 6 months trade data, we have a good starting point to assess how the full year CAD could be. The FY24 CAD came in sharply lower at $23.2 Billion or just 0.6% of GDP. This was helped along the way by a current account surplus in the fourth quarter ended March 2024 and back-ending of last quarter imports. Delays in freight movement crisis in West Asia also played a part in shifting some of the deficit to FY25. Let us turn to the CAD picture for FY25.

We will get the official CAD for Q2 only by the end of December 2024; but we can safely extrapolate full year current account deficit in the region of $75 Billion to $80 Billion. That would still be about 1.9% to 2.0% of the FY25 nominal GDP. In short, the CAD picture for FY25 is likely to be sharply higher than FY24, but closer to the FY23 figure. One thing is clear; the CAD position in FY25 will not be as flattering as FY24, even assuming that the government does manage to back-end some of the CAD to the next fiscal year. We will get the first indications when the Q2FY25 current account deficit is announced in December 2024; as it will give the picture of H1-FY25 CAD. If one wants to see the stress, look at the rupee that has weakened beyond ₹84/$.