India’s merchandise trade deficit moderated to USD 20.1 bn in Jun-23 from USD 22.0 bn (revised lower from USD 22.1 bn) in May-22. Both exports and imports contracted sequentially in Jun-23, but a relatively lower contraction in exports vis-à-vis imports helped in moderating the trade deficit print.

Key highlights of merchandise trade data in Jun-23

• The impact of Merchandise exports fell to its lowest in 8-months to USD 33.0 bn (-5.8% MoM and -22.0% YoY).

o    On annualised basis, of the 14 key export subcategories, only 4 registered an expansion. Electronic goods exports (backed by support from the PLI scheme) continued to lead with 45.4% YoY growth in Jun-23. Meanwhile, the biggest drag came from Petroleum products, which contracted by 47.5% YoY (as lagged impact of lower oil prices and refining margins trickled down). 

o     Cumulative merchandise exports over Apr-Jun FY24 stood at USD 102.7 bn, marking a decline of 15.1% YoY over corresponding period in FY23.

• ·Merchandise imports also moderated significantly to USD 53.1 bn (-6.9% MoM and -17.5% YoY).

o    On annualised basis, of the 15 key import subcategories, only 4 registered an expansion. Gold imports recovered strongly posting a growth of 82.4% YoY (while higher demand due to withdrawal of Rs 2000 banknote seems to have supported this, recent imposition of import restrictions on plain gold jewellery by the government could provide some offsetting impact). Meanwhile, import of Ores & Minerals, Petroleum Products, and Textiles saw a sizeable contraction on annualized basis.

o    Cumulative merchandise imports over Apr-Jun FY24 stood at USD 160.3 bn, marking a decline of 12.7% YoY over corresponding period in FY23.

Services trade in Jun-2

Services trade surplus is estimated to have moderated in Jun-23, to USD 11.2 bn from USD 11.6 bn in May-23. In a sign of gradual slowdown in global demand, growth in services exports (at USD 27.1 bn) slipped to a 28-month low of 0.7% YoY. Services imports too softened, registering a growth of 0.7% YoY, down from 2.0% in May-23.

Outlook

The cumulative merchandise trade deficit for Q1 FY24 has seen a moderation to USD 57.6 bn in Q1FY24 from USD 62.6 bn in Q1 FY23. This corroborates our expectation of a lower current account deficit of USD 53 bn (1.4% of GDP) in FY24 vis-a-vis USD 67 bn (2.0% of GDP) in FY23. 

• On the global front, while near complete normalization of global supply chains has been facilitating trade flow, the anticipated slowdown in global demand (World Bank projects Global GDP to moderate to 2.1% in 2023 from 3.1% in 2022) and lower commodity prices (World Bank projects a 23.2% decline in its commodity price index in 2023 vs. a 41.9% increase in 2022) would weigh upon India’s exports – not just merchandise but also services. 

• On the other hand, the anticipated moderation in India’s GDP growth to 6.0% (with some upside likelihood) from 7.2% in FY23 could drive imports lower.

Table 1: Highlights of merchandise trade balance

Note: (i) Numbers may not add up due to rounding off and revision in headline exports and imports. (ii) The latest services trade data released by RBI is for May-23. The data for Jun-23 is an estimate by the Ministry of Commerce, which will be revised based on RBI’s subsequent release.

Note: (i) Numbers may not add up due to rounding off and revision in headline exports and imports. (ii) The latest services trade data released by RBI is for May-23. The data for Jun-23 is an estimate by the Ministry of Commerce, which will be revised based on RBI’s subsequent release.

Chart 1: Both merchandise, services exports lost considerable growth momentum