KEY TAKEAWAYS - India’s merchandise trade deficit widened back to a 5-month high of USD 22.1 bn in May-23 from USD 15.1 bn in Apr-23, driven by a sharper increase in imports vis-à-vis exports sequentially.
- Merchandise
exports expanded by a subdued 0.7%MoM to USD 35.0 bn in May-23. On annualized
basis, export growth remained in negative territory for the fourth consecutive
month, contracting by a significant 10.3% in May-23.
- Merchandise
imports expanded sequentially by 14.5%MoM to USD 57.1 bn in May-23. On
annualized basis, import growth contracted for fifth consecutive month by 6.6%..
- Services
trade surplus is estimated to have eased marginally in May-23, to USD 11.8 bn
from USD 12.2 bn in Apr-23 due to a higher sequential downside in exports vs.
imports.
- Notwithstanding
the wider merchandise trade deficit in May-23, we continue to expect the
current account deficit for FY24 to narrow towards 1.4% of GDP from an
estimated 2.0% in FY23, as both price and volumes are expected to remain benign.
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India’s
merchandise trade deficit widened to a 5-month high of USD 22.1 bn in May-23
from USD 15.1 bn (revised lower from USD 15.2 bn) in Apr-22. Both exports and
imports expanded sequentially in the month, but a relative outperformance of imports
vis-à-vis exports pushed the trade deficit print wider.
Merchandise Exports
Merchandise
exports expanded sequentially by a subdued 0.7%MoM to USD 35.0 bn in May-23
from USD 34.7 bn in Apr-23. However, on annualised basis, export growth
remained in negative territory for the fourth consecutive month, contracting by
10.3% in May-23, reflecting the impact of the global slowdown.
- On annualised basis, of the 14 key export
subcategories, only 5 registered an expansion. Electronic goods exports continued
to lead with 74.0%YoY growth in May-23, an indication that Government’s PLI
scheme has started to yield tangible results.
- The biggest drag came from Petroleum products,
which contracted by 29.9%YoY, on account of the softness in global crude oil
prices. Brent crude is trading 11.4% lower on YTD basis and 43.2% since last
year’s Jun-22 peak.
- Cumulative merchandise exports over Apr-May FY24
stood at USD 69.7 bn, marking a decline of 11.4% over corresponding period in FY23
levels.
Merchandise Imports
Sequentially,
merchandise imports expanded sequentially by 14.5%MoM to USD 57.1 bn in May-23.
On annualized basis, import growth contracted for fifth consecutive month by
6.6%.
- The breadth of weakness was broad based with
just 5 out of 15 sub-categories registering annualised expansion. Machinery
Items emerged as a strong outperformer with a growth of 25.1%YoY in May-23,
which raises hopes of a pickup in private sector capital expenditure in the
current year. .
- NONG (non-oil-non-gold) imports, a key
indicator of domestic demand, picked up to USD 35.9 bn in May-23 from USD 31.5
bn in Apr-23, clocking a positive annualised growth after a gap of 4 months of
1.7%.
- Gold imports displayed buoyancy, climbing up to
USD 5.6 bn in May-23 from USD 3.2 bn in Apr-23, supported by wedding season and
record high global prices. Gold imports could remain supportive on account of
withdrawal of Rs 2000 bank note, as some funds make their way into
discretionary demand for gold.
- Cumulative imports over Apr-May FY24 stood at
USD 107.0 bn, a decrease of 10.2% compared to the corresponding period in FY23.
Services
Trade
Services
trade surplus is estimated to have eased marginally in May-23, to USD 11.8 bn
from USD 12.2 bn in Apr-23 due to a higher sequential downside in exports vs.
imports
- Services
exports and imports are estimated to have fallen to a 10-month and 7-month low USD
25.3 bn and USD 13.5 bn respectively in May-23.
Outlook
Notwithstanding the widening
of the merchandise trade deficit seen in May-23, we continue to expect FY24 to
witness a moderation in current account deficit with both price and volumes offering
comfort, as -
- Supply disruptions have normalised completely
with the New York Fed’s Global Supply Chain Pressure Index falling for a fifth
month in a row to -1.71 in May-23, its lowest level on record.
- Accelerated pace of monetary tightening by key
central banks has ushered in a slowdown in global demand. This has led to a
moderation in commodity prices, with the CRB index down by 13.7%YoY in Jun-23,
so far.
- The anticipated moderation in domestic economic
activity could further drive imports to decline.
- WTO has revised its forecast for world
merchandise trade volume growth to 1.7% for 2023 from 1.0% earlier.
- On
services trade, there is a palpable improvement in domestic services exports amidst
a post Covid thrust on digitization and cost optimization globally.
On
the back of subdued commodity prices (including oil), moderating GDP growth in
FY24 and a strong support from services’ exports, we continue to expect the
current account deficit for FY24 to narrow towards 1.4% of GDP from an 2.0% in
FY23.
Says
Suman Chowdhury, Chief Economist and Head- Research, Acuité Ratings &
Research “The overall deficit in the trade of goods and services has
risen back in May-23 to double digits at USD 10.4 bn with a faster sequential
rise in merchandise imports vs exports and a lack of momentum in services
exports in the current quarter after the buoyant growth last year. While the
growth in export of electronics goods arising out of the PLI scheme is
encouraging, it has been more than offset by the drop in exports of petroleum
products. Higher imports of gold and machinery, the latter an encouraging sign
for private sector investments, have also accounted for the increased trade
deficit. Nevertheless, we believe that the average monthly deficit figures will
remain moderate in the current fiscal with the softness in commodity prices and
the better performance of services exports, leading to an improvement in the
current account front.”
Table 1: Highlights of merchandise trade balance
Note: Numbers may not add up due to rounding off and revision in headline exports and imports
Chart 1: Services exports will continue to pull up the overall
trade deficit
Chart 2: Global supply chain pressures have normalized
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