KEY TAKEAWAYS - Merchandise exports contracted sequentially by 1.1% MoM in Dec-22, while imports remained almost at the same level. This pushed the trade deficit higher albeit marginally to a level of USD 23.8 bn in Dec-22 from USD 23.4 bn in Nov-22.
- Merchandise exports came in at USD 34.5 bn on account of a sharp sequential moderation in Oil exports (Petroleum Products) even as Machinery Items, Chemicals, Textiles, and Agri & Allied Products rose in Dec-22. In annualized terms, this translated into a contraction of 12.2% for Dec-22.
- Merchandise exports came in at USD 34.5 bn on account of a sharp sequential moderation in Oil exports (Petroleum Products) even as Machinery Items, Chemicals, Textiles, and Agri & Allied Products rose in Dec-22. In annualized terms, this translated into a contraction of 12.2% for Dec-22.
- Outlook on exports remains a concern, clouded by an increased weakness in global demand impulses, rapid tightening of financial conditions, and persistently elevated geopolitical uncertainties.
- Overall, we continue to maintain our FY23 current account deficit forecast of USD 106 bn. `
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India’s merchandise trade deficit widened
slightly to USD 23.8 bn in Dec-22 compared to USD 23.4 bn in Nov-22. Merchandise
exports moderated sequentially by USD 0.3 bn in Dec-22, while imports remained virtually
unchanged.
Exports
For the month, merchandise
exports slipped marginally to USD 34.5 bn from USD 34.8 bn in Nov-22. After posting
a modest growth of 9.6% YoY in Nov-22, merchandise exports have retreated,
contracting by 12.2% YoY in Dec-22 but this has been largely due to the base
factor with Nov-21 print showing a sharp dip.
- The sequential decline in exports was led by a
sharp dip in Petroleum Products (-9.26%MoM) even as Machinery Items, Chemicals,
Textiles, and Agri & Allied Products exhibited momentum.
- In a reflection of policy support from the PLI
scheme, export of Electronic Goods recorded the highest growth of 37.0%YoY in
Dec-22 on record, with value of exports clocking at USD 2.3 bn.
- Cumulative exports over Apr-Dec FY23 stood at
USD 332.8 bn, an increase of 9.1%YoY compared to the corresponding period in FY22.
While the government had set a target of USD 500 bn merchandise exports for
FY23, the global slowdown has made that task very challenging. However, the
aggregate figure is likely to exceed the levels of FY22 despite the severe
external headwinds.
Imports
Merchandise imports remained
unhinged at USD 58.2 bn. In annualized terms, imports took a solid beating with
the first contraction in 25-months of 3.5%YoY in Dec-22.
- At a broad level, sequential increase in non-oil
non gold imports (7.2%MoM) was offset by sequential moderation in gold imports
(-32.8%MoM) and oil imports (-3.2%MoM).
- At a granular level, sequential decline in
imports of Gems & Jewellery, Ores & Minerals, etc. was offset by
sequential increase in imports of Petroleum Products, Transport Equipments,
Electronic Goods, Agri & Allied Products, Base Metals, Machinery Items, etc.
- Imports of Base Metals, Machinery Items, and
Transport Equipments scaled new monthly peaks.
- Cumulative imports over Apr-Dec FY23 stand at
USD 551.4 bn, an increase of 24.8% compared to the corresponding period in FY22.
Outlook
A mild incremental expansion of trade deficit
was anticipated basis the impending weakness in the global demand impulses. Looking
ahead, with the generic commodity basket (Reuters CRB Index) now showing signs
of stability, the trade deficit could find an anchor around current levels.
However, the near-term outlook remains
worrisome amidst weakening of global demand impulses, tightening of global
financial conditions and lingering geopolitical uncertainties. In its latest update to the Global Economic Prospects
report, the World Bank slashed its growth forecast for 2023 and 2024 to 1.7%
and 2.7% respectively - this could weigh on domestic export growth, which is likely
to dip into single digits for FY23.
Broadly, India’s imports are expected
to outpace its exports amidst relatively better domestic growth momentum, aided
by government’s capex expenditure. Having said so, it is important to note that
imports have moderated substantially after peaking at USD 66.7 bn in Jun-22,
reflecting the decline in global commodity prices. In addition, the anticipated
moderation in domestic economic activity and increased reliance on Russia for crude
oil imports (its share in India’s import basket has jumped to 8% from 1.5-2.0%
prior to the war with Ukraine) in H2 FY23 could further moderate imports
somewhat.
On net basis, we continue to
stick to our FY23 current account deficit forecast of USD 106 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