- India’s merchandise trade deficit widened marginally in Jul-23, to USD 20.7 bn from USD 18.8 bn in Jun-23.
- Merchandise exports contracted sequentially by 6.1%MoM to USD 32.3 bn in Jul-23. On annualized basis, export growth remained in negative territory for the sixth consecutive month, contracting by 15.9% in Jul-23.
- Sequentially, merchandise imports moderated marginally by 0.4%MoM to USD 52.9 bn in Jul-23. On annualized basis, import growth contracted for seventh consecutive month by 17.0%.
- Services trade surplus is estimated to have eased marginally in Jul-23, to USD 12.3 bn from USD 12.6 bn in Jun-23 due to a higher sequential decline in exports vs. imports in absolute terms.
- The run-rate so far, for India’s merchandise trade deficit exudes comfort albeit that could begin to wane in the coming quarters owing to – 1) recent firmness in commodity prices, 2) slowing global growth and global merchandise trade
expect FY24 current account deficit at USD 53 bn (1.4% of GDP) vs. USD 67 bn
(2.0% of GDP) in FY23, with size of the deficit likely to expand in H2 FY24
compared to H1.
merchandise trade deficit widened marginally in Jul-23, to USD 20.7 bn from USD
18.8 bn in Jun-23 (revised lower from USD 20.1 bn). Sequentially, while both
exports and imports moderated, a faster contraction in exports vs. imports led
to the widening.
exports contracted sequentially by 6.1%MoM to USD 32.3 bn in Jul-23. On
annualised basis, export growth remained in negative territory for the sixth
consecutive month, contracting by 15.9% in Jul-23.
- Of the 14 key export subcategories, only 4
registered an annualised expansion. Electronic goods continued to post a
healthy expansion of 13.1% YoY, benefiting from the Government’s PLI scheme,
but for the first time in 13-months were not the best performer. Export
sub-category of Stone, Plaster, Cement, etc. clocked the highest growth of
- The biggest drag continues to come from
Petroleum products, which contracted by 43.7%YoY in Jul-23, on account of the
softness in global crude oil prices. Notwithstanding the recent increase of
17.3% since end Jun-23, Brent crude is still trading 32.4% lower vis-a-vis last
year’s Jun-22 peak.
- Overall, non-oil exports clocked a 9-month low
of USD 27.7 bn, clearly underscoring the weakness in global demand.
imports moderated by 0.4%MoM to USD 52.9 bn in Jul-23. On annualized basis, import
growth contracted for seventh consecutive month by 17.0%.
- The breadth of weakness was broad based with 10
out of 15 sub-categories registering annualised contraction. Electronics and machinery
items emerged as strong outperformers clocking a growth of 14.9%YoY and 13.5%
- Oil imports came at USD 11.8 bn, down 6.3%MoM
to mark the lowest level since Aug-21. As per industry sources, India’s price
advantage of importing Russian oil is narrowing as Russian oil has breached the
price cap set by G7 countries.
- Gems and Jewellery imports though eased from a
9-month high of USD 7.3 bn in Jun-23 to USD 5.5 bn in Jul-23 but have continued
to remain strong over the last three months. Withdrawal of Rs 2000 bank note
along with wedding season have supported domestic demand, even as gold prices
- NONG imports, a key indicator of domestic
demand, picked up to USD 35.7 bn in Jul-23 from USD 33.3 bn in Jun-23, though
remaining 7.5% lower on YoY basis. .
trade surplus is estimated to have eased marginally in Jul-23, to USD 12.3 bn
from USD 12.6 bn in Jun-23 due to a higher sequential decline in exports vs.
exports and imports are estimated to have fallen by 2.5%MoM each to USD 27.2 bn
and USD 14.9 bn respectively
run-rate, so far for India’s merchandise trade deficit exudes comfort, which
could however wane in the coming quarters owing to –
- Increase in global commodity prices seen in
recent weeks reflecting the resilience in US economy, persistence of
geopolitical factors and policy stimulus in China.
- Export restrictions on select agricultural
commodities and fresh imports on some other such as pulses to rein-in domestic
- Global merchandise trade continues to remain on
a moderating path. As per UNCTAD, nowcast of global trade in merchandise stands
at 0.5% for Q3 2023 (as of Aug 8, 2023) compared to
0.2% in Q2.
continue to expect FY24 current account deficit at USD 53 bn (1.4% of GDP) vs.
USD 67 bn (2.0% of GDP) in FY23, with size of deficit likely to expand in H2
FY24 vs. H1.
having the comfort of a moderate CAD accompanied by a BoP surplus, INR weakened
to an all-time low, breaching the 83 level earlier this week. In recent weeks,
the following factors have weighed upon the domestic currency:
- Show of resilience by US economy has once again
raised the likelihood of another 25 bps rate hike by the Fed in Sep-23. In
contrast, despite breaching the upper threshold of inflation tolerance, RBI’s
maintenance of status quo has increased the monetary policy divergence and the
risk of fresh capital outflows.
- With USD clawing back strength, other EM
currencies are on a back foot. For EMs, additional factor of a lower CNY (on
account of weaker than expected growth momentum and renewed concerns over real
estate stability in China) further imparts weakness to other currencies.
- Recent surge in commodity prices, esp. crude
oil, has also exacerbated the impact of the above-mentioned factors on INR.
such, depreciation pressure on INR could persist in near term though active
intervention from the RBI could continue to guard against excess volatility. Over
medium term, this is likely to provide some upside risk to our year-end USDINR
forecast of 81.
Suman Chowdhury, Chief Economist and Head, Research, Acuité Ratings &
Research “The improving trend in the current account balances (lower
deficit) has been slowed down by the headwinds in merchandise exports which has
dropped by 14.5% YoY in the first four months of the fiscal. Given the
resilience in the domestic economy and a gradual pickup in private sector
capex, non-oil imports may hold up better in the rest of the year and along
with a fresh rise in crude oil prices, may increase the deficit on the
merchandise side. Further, the volatility in the capital account is likely to
persist with uncertainty on the Fed stance in the rest of the year as compared
to the extended pause by RBI. This is reflected in the weakness seen in the INR
over the first two weeks of August.”
Table 1: Highlights of India’s
*Note: Numbers may not add up
due to rounding off and revision in headline exports and imports
Chart 1: Global trade nowcast for Q3-23 points towards weak growth
Chart 2: Services exports continues to offer comfort on total