- India’s merchandise trade deficit moderated to USD 28.0 bn in Aug-22 from its record high level of USD 30.0 bn in Jul-22.
- While both exports and imports declined sequentially, the USD 2 bn shrinkage in trade deficit resulted from a marginally higher contraction in imports vis-à-vis exports.
- Moderation in merchandise trade deficit is along expected lines with lagged impact of the correction in international commodity prices playing a key role along with minor impact coming from the rising share of Russia in India’s import basket.
- Monthly trade deficit prints could moderate in the coming months as impact of the correction in commodity prices trickle down and the global supply chain pressures ease..
- Increasing risks to exports and relatively robust demand for imports due to a domestic consumption recovery, would however continue to keep pressure elevated.
- We have increased our FY23 current account deficit (CAD) projection to USD 130 bn (3.1-3.2% of GDP) from USD 105 bn.
India’s merchandise trade deficit moderated to USD 28.0 bn in Aug-22 from its record high level of USD 30.0 bn in Jul-22. While both exports and imports declined sequentially, the USD 2 bn shrinkage in trade deficit resulted from a marginally higher contraction in imports (-6.6% MoM) vis-à-vis exports (-6.5% MoM).
In value terms, merchandise exports moderated to a
9-month low of USD 33.9 bn in Aug-22 from USD 36.3 bn in Jul-22. This translated
into an annualized growth of 1.6% YoY, the weakest in last 18-months.
- Barring Rice (USD +0.1 bn) and Gems & Jewellery (USD 0.1 bn), that
registered a modest sequential increase, the remaining broad export categories were
either broadly unchanged or saw a sequential decline.
Tobacco exports touched a new monthly high of USD 0.13 bn in Aug-22.
- The sequential
decline was led by Engineering Goods (USD -1.1 bn), Petroleum Products (USD
-0.7 bn), Ready Made Garments (USD -0.1 bn), Organic & Inorganic Chemicals
(USD -0.1 bn), Electronic Goods (USD -0.1 bn), etc.
iron ore exports posted its third consecutive month of more than 90% annualized
contraction amidst imposition of 50% export duty by the government on low grade
iron ore in May-22 and a slowdown in demand from China.
exports moderated to USD 28.2 bn, the lowest level in last 9-months.
Nevertheless, cumulative exports for the first five months of FY23
stand at USD 193.5 bn, an expansion of 17.7% compared to the corresponding
period in FY22.
Merchandise imports moderated to a 4-month low of USD 61.9 bn in Aug-22 from USD 66.3 bn in
Jul-22, translating into an annualized growth of 37.3% YoY. At a granular
- The sequential
decline in imports was led by Petroleum Products (USD -3.4 bn), Precious Stones
(USD -0.8 bn), Coal (USD -0.6 bn), Silver (USD -0.4 bn), Fertilizers (USD -0.2
bn), Organic & Inorganic Chemicals (USD -0.2 bn), Plastic & Rubber
Articles (USD -0.2 bn), etc.
Gold (USD +1.2 bn), Electronic Goods (USD 0.5 bn), and Transport Equipment (USD
0.2 bn) were key sub-categories within imports that saw a sequential increase
during the month.
- While Leather
Products and Paper Products saw a modest sequential increase, they nevertheless
touched a record monthly high of USD 0.11 bn and USD 0.19 bn each in Aug-22.
(Non-oil-non-gold) imports, a key indicator of domestic demand, moderated to
USD 40.6 bn in Aug-22 from USD 42.8 bn in Jul-22.
Cumulative imports for the first five months of FY23
stand at USD 318.0 bn, marking an expansion of 45.7% compared to the
corresponding period in FY22.
As highlighted in our last month’s
note, the moderation in India’s merchandise trade deficit in Aug-22 is along
expected lines with lagged impact of the correction in international commodity
prices playing a key role. A minor impact could also be coming from the sharp
increase in Russia’s share in the import basket (to 6.4% in Jul-22 vis-à-vis
1.4% in Jul-21). Going forward, it is likely that the monthly trade deficit
could moderate further as the full impact of lower commodity prices trickles
However, sequential pressures on
trade deficit could remain elevated as:
start of festive season in India could propel domestic demand, which is already
facing tailwinds from complete unlocking of the economy and high inoculation
coverage (with ~68% of the population having received double dose).
- The Russia-Ukraine
war has already dampened world trade volume (the IMF in its Jul-22 update of
the World Economic Outlook report slashed its projection for growth in 2022 and
2023 world trade volume (goods and services) by 90 bps and 120 bps to 4.1% and
3.2% respectively. This has started to manifest via the moderation in India’s
marginal adverse impact on exports is also on account of the recently imposed
export restrictions by the government in case of select commodities such as
rice and wheat.
cases of persistence of supply disruption (in case of import of Vegetable Oils,
Coal, etc.) and sudden spurt in demand (in case of import of Silver on account
of substitution effect vis-à-vis gold and its rising demand on for green infrastructure)
is also seen to be playing a role.
We have therefore, raised our FY23
current account deficit (CAD) projection to USD 130 bn (3.1-3.2% of GDP) from
USD 105 bn.
Table 1: Highlights of merchandise trade balance
Note: Numbers may not add up due to rounding off and revision in headline exports and imports
Chart 1: Complete
unlocking of the economy is supporting demand for imports