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