- India’s merchandise trade deficit moderated to a 13-month low in Feb-23, coming in at USD 17.4 bn compared to USD 17.7 bn in Jan-23, driven by a sharper increase in exports vis-à-vis imports sequentially.
- Merchandise exports exhibited an impressive performance to expand sequentially by 2.9% MoM in Feb-23, driven by strength in exports of Gems & Jewellery, Agri & Allied Products, and Machinery Items.
- Sequentially, merchandise imports rose marginally by 1.3% MoM on account of Gems & Jewellery, Petroleum Products, Ores & Minerals, and Transport Equipments.
- Despite the sequential expansion for exports and imports, the annualized growth remained in negative territory contracting by 8.8% YoY and 8.2% YoY respectively.
- Outlook on exports remains a concern, clouded by weakening of global demand impulses, tight financial conditions, and persisting geopolitical uncertainties.
- Overall, we continue to maintain our FY23 current account deficit forecast of USD 106 bn but with a downward bias to it.
India’s merchandise trade
deficit moderated to a 13-month low in Feb-23, coming in at USD 17.4 bn
compared to USD 17.7 bn in Jan-23. While both exports and imports expanded
sequentially in the month, the relative outperformance of exports vis-à-vis imports
drove the moderation in overall trade deficit.
After contracting sequentially
by 13.5% MoM in Jan-23, merchandise exports registered a growth of 2.9% MoM to
USD 33.9 bn in Feb-23 from USD 32.9 bn in Jan-23. Nevertheless, on annualised
basis, export growth remained in negative territory for the third consecutive
month, contracting by 8.8% YoY in Feb-23
- The sequential increase in exports was led by Gems
& Jewellery, Agri & Allied Products, and Machinery Items.
- Despite sequential moderation in value terms,
annualised growth in Electronics goods clocked the highest growth of 29.9%YoY in
Feb-23 among all key sub-categories of exports. The sector has benefited from
the PLI scheme with YTD (Apr-Jan) growth in electronics exports registering a
growth of 49.5%YoY.
- Cumulative merchandise exports over Apr-Feb
FY23 stood at USD 405.9 bn, an increase of 8.5%YoY compared to the
corresponding period in FY22.
imports registered a modest growth of 1.3% MoM in Feb-23 from a contraction of
15.8% MoM in Jan-23. In annualized terms, import growth remained in negative territory for the third
consecutive month, contracting by 8.2% YoY in Feb-23.
- In value terms, the sequential expansion was
led by Gems & Jewellery, Petroleum Products, Ores & Minerals, and
- The breadth of contraction was broad-based,
with 7 of the 15 sub-sectors registering annualised contraction.
- Cumulative merchandise imports over Apr-Feb
FY23 stood at USD 635.5 bn, an increase of 18.8%YoY compared to the
corresponding period in FY22.
On the services front, trade
surplus in Feb-23 is estimated to have risen to USD 14.6 bn compared to USD 13.8
bn in Jan-23. The upside was led entirely by services exports.
- Services exports is estimated to have risen to
USD 29.2 bn, clocking a growth of 36.8% YoY on annualised basis and 4.0% MoM on
- Amidst the buoyancy in services exports led by
IT/ITeS sector, on net basis, India’s monthly trade balance (goods and
services) was in a marginal deficit of USD 2.8 bn in Jan-23, with the
cumulative trade deficit over Apr-Feb FY23 standing at USD 114.6 bn.
The persistent moderation in merchandise
trade deficit below USD 20 bn levels for two months in a row is comforting
compared to the average monthly deficit of USD 24.3 bn in Q3 FY23. Gradual
easing of global supply chain disruptions and range-bound global commodity
prices in recent months has helped to lower the pressure on India’s merchandise
Having said so, the near-term
outlook remains worrisome amidst weakening of global demand impulses, tight
global financial conditions and lingering geopolitical uncertainties. From RBI
perspective, concerns over impact of an adverse Southwest monsoon and any
persistent instability in the US banking system could likely alter the monetary
policy response - towards a pause in the Apr-23 MPC meeting, leaving the
central bank to turn more data dependent to balance better growth-inflation
Other factors that
could keep trade deficit pressures somewhat intact in the coming months include
- Bottoming out of global commodity prices,
especially given the revision in expectations of global growth faring better in
2023 than envisaged earlier. The IMF in its Jan-23 World Economic Outlook (WEO)
revised 2023 world GDP growth upwards by 20 bps to 2.9%.
- The continuing stickiness in global inflation
is likely to compel central banks to keep rates higher for longer, the impact
of which is bound to be felt on lower global demand and in turn India’s exports
- Demand for gold could firm up ahead of the
seasonal demand setting in.
said so, some cushion on trade deficit can be expected from a slowing domestic
demand as delayed impact of monetary tightening catches up. In addition, the resilience
in services and increased reliance on Russia for crude imports could further
moderate imports somewhat.
net basis, we continue to retain our FY23 current account deficit forecast of
USD 106 bn i.e., 3.1% of GDP. However, we attach a downward bias to the full
year estimate given the lower-than-expected Feb-23 trade deficit along with
continued strength in services exports.
Table 1: Highlights of merchandise trade balance
Numbers may not add up due to rounding off and revision in headline exports and