19 Dec 2022
India’s merchandise trade deficit narrowed to the lowest level since May-22, printing at USD 23.9 bn in Nov-22 compared to USD 27.6 bn in Oct-22. Merchandise exports exhibited an impressive performance to expand sequentially by 1.9% MoM in Nov-22, while imports retreated by 5.3% MoM. This helped narrow the trade deficit.
After an annualized contraction of 12.1% in Oct-22, merchandise exports registered a modest growth of 0.6% YoY to USD 32.0 bn in Nov-22 from USD 31.4 bn in Oct-22. This marks the first sequential expansion (1.9% MoM) in 5-months.
Merchandise imports continued to witness a downward trend, easing to a 10-month low of USD 55.9 bn due to softening global commodity prices. On annualized basis, imports clocked an expansion of 5.4% - the third month of single-digit growth.
Gradual easing of global supply chain disruptions and softening of international commodity prices in recent months has helped to lower the pressure on India’s merchandise trade deficit.
Headline exports fared better on the back of post festive ramp-up in activity (run up to Dussehra and Diwali is typically associated with lower activity due to lesser number of working days) and on account of bright spots like electronics. However, the near-term outlook remains worrisome amidst weakness in global demand impulses, tightening of global financial conditions and lingering geopolitical uncertainties. The IMF in its Oct-22 update to the World Economic Outlook report, slashed its growth forecast for 2023 world GDP and world trade by 20 bps and 70 bps to 2.7% and 2.5% - This could weigh on domestic export growth, likely to dip into single digits for FY23.
Broadly, imports are likely to continue to outpace exports amidst relatively better domestic growth momentum, aided by government’s capex expenditure. Having said so, after peaking at USD 66.7 bn in Jun-22, imports have also moderated substantially and have sequentially moved lower in each of the last four months reflecting the decline in global commodity prices. The Reuters CRB index after peaking in early Jun-22, has moderated by over 12% despite some moderate bounce-back over the last one month. In addition, the anticipated moderation in domestic economic activity and increased reliance on Russia (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 weigh down imports.
On net basis, we continue to stick to our FY23 current account deficit forecast of USD 130 bn with some downside risks.
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: Despite recent moderation, India’s trade deficit remains elevated